Penalty not warranted where service tax liability was genuinely doubtful and reasonable cause protected the assessee.

Where the taxability of commission earned for arranging finance was under genuine doubt, the Tribunal held that reasonable cause existed and the penalty escape clause in Section 80 applied. As the assessee had deposited the tax before the show cause notice, penalties under Sections 76 and 78 of the Finance Act, 1994 were not exigible, and the deletion of penalties was upheld.

---

---

Issues: Whether penalties under Sections 76 and 78 of the Finance Act, 1994 were sustainable where the levy itself on commission received for arranging finance was doubtful and the assessee had deposited the tax before issuance of the show cause notice.

Analysis: The activity of arranging loans for customers and earning commission was treated as one on which there existed genuine doubt regarding tax liability, including the correct service classification. In such circumstances, the Tribunal accepted that the case fell within the protective ambit of Section 80 of the Finance Act, 1994, which permits non-imposition of penalty where reasonable cause is shown. The earlier view of the Commissioner (Appeals) setting aside the penalties was therefore found to be justified.

Conclusion: The penalties under Sections 76 and 78 of the Finance Act, 1994 were not exigible, and the Revenue's appeal failed.

Final Conclusion: The assessee succeeded on the penalty issue, and the Revenue's challenge to the deletion of penalties was rejected.

Ratio Decidendi: Where the taxability of the activity is under genuine doubt and reasonable cause is established, penalty under the service tax provisions is not warranted by virtue of the statutory escape clause.

---