Reasonable cause for delayed service tax payment can justify waiver of penalty when tax and interest are paid without mala fide.

Penalty under Section 78 of the Finance Act, 1994 was held unsustainable because the service tax arose from a newly introduced levy, the assessee had paid the tax and interest voluntarily before or by the stage of notice and adjudication, and the record disclosed no mala fide. On those facts, the Tribunal's conclusion that reasonable cause existed and that Section 80 protected the assessee was upheld. The tax demand itself remained undisturbed, but the penalty was deleted.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was liable to be sustained, or whether the case fell within the scope of Section 80 of the Finance Act, 1994 on the ground of reasonable cause and absence of mala fide.

Analysis: The service tax liability arose from a newly introduced levy on commission received for arranging loans for vehicle purchases. The assessee had paid the tax partly before issuance of the show cause notice and the balance before the adjudication order, along with interest. The record also showed that the issue had been clarified later by the Board's circular, and there was no finding of mala fide on the part of the assessee. In these circumstances, the Tribunal's view that the statutory protection under Section 80 was attracted and that penalty was not warranted was found to be justified.

Conclusion: Penalty under Section 78 was not sustainable, and the assessee was entitled to relief under Section 80.

Final Conclusion: The dismissal of the revenue's appeal left undisturbed the Tribunal's cancellation of penalty while maintaining the tax demand.

Ratio Decidendi: Where tax on a newly introduced levy is paid voluntarily, with interest, before or around the stage of notice and adjudication, and the record discloses no mala fide, penalty may be waived under Section 80 despite the levy being otherwise payable.

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