Reduced penalty under Section 78 must be reconsidered where tax and interest were partly paid and proviso relief was not examined.

Penalty under Section 78 of the Finance Act, 1994 required fresh examination because the record indicated that part of the tax and related interest had been paid, while the assessee claimed the benefit of reduced penalty under the proviso had not been considered. The matter was remanded to the Commissioner to reconsider the penalty and determine whether the reduced-penalty option under the proviso to Section 78 was available on the facts.

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Issues: Whether the penalty imposed under Section 78 of the Finance Act, 1994 required reconsideration and whether the assessee was entitled to the benefit of reduced penalty under the proviso to that section.

Analysis: The appeal challenged the Commissioner's decision to restrict the penalty under Section 78 instead of imposing penalty equal to the service tax demand. The record showed that part of the tax and the related interest had been paid, and the assessee contended that the option of reduced penalty under the proviso to Section 78 had not been granted. In these circumstances, the penalty issue required fresh examination by the adjudicating authority.

Conclusion: The matter on penalty under Section 78 was remanded to the Commissioner for reconsideration, with direction to examine the applicability of reduced penalty under the proviso to Section 78.

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