Bona fide belief and full disclosure barred service tax penalties where no suppression or intent to evade was proved.

Service tax penalties were held unsustainable where the assessee had disclosed the taxable receipts in its books and paid the tax after detection under a bona fide belief that Direct Sales Associate activity was outside Business Auxiliary Service. The record did not establish fraud, collusion, wilful misstatement, suppression of facts, or any contravention with intent to evade tax. On those facts, the statutory protection under section 73(3) applied, so the tax demand was regularised without penalty and the revenue's challenge failed.

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Issues: Whether penalties under the service tax provisions were sustainable when the tax had been paid after detection and whether the case disclosed suppression of facts or intent to evade payment of tax.

Analysis: The respondent had recorded the taxable receipts in its books and the non-payment arose from its bona fide belief that the activity of Direct Sales Associate was not covered under Business Auxiliary Service. On the facts, the ingredients of fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade tax were not established. The statutory safeguard under section 73(3) was therefore attracted, as the tax was paid on ascertainment and the facts did not justify the allegation of evasion.

Conclusion: The penalties were not sustainable and the revenue's challenge to the order setting them aside failed.

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