Service tax penalty remains leviable despite later payment where undisclosed taxable activity and no reasonable cause were shown.

Service tax penalty and interest remained leviable where taxable services had been provided from 1 July 2003 but registration was obtained only later, and the past transactions were not disclosed to the department until pursued by it. Payment of tax and interest during the pendency of proceedings was not treated as a voluntary discharge before notice, because a substantial part of the demand was paid only during adjudication. In the absence of prompt disclosure and any established reasonable cause or bona fide basis for waiver, the penal provisions under the service tax law were held applicable and the plea for penalty relief was rejected.

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Issues: Whether penalty and interest under the service tax law were leviable when the service tax and interest were paid during the pendency of proceedings and the assessee pleaded bona fide belief and prior payment before the show cause notice.

Analysis: The services rendered by the assessee were taxable from 1-7-2003, while service tax registration was obtained only in February 2005. The past transactions were not disclosed promptly to the department and were furnished only after departmental pursuit. The payment was not treated as a voluntary discharge before notice, as a substantial part of the demand was paid only during adjudication. In the absence of prompt disclosure and any established reasonable cause, the case was held to fall within the penal provisions governing service tax.

Conclusion: Penalty was held leviable and the plea for waiver of penalty was rejected.

Final Conclusion: The appeal failed and the order confirming service tax liability, interest, and penalty was maintained.

Ratio Decidendi: Payment of service tax during adjudication does not by itself constitute a ground to avoid penalty where taxable activity was undisclosed for a substantial period and no reasonable cause is established.

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