Bona fide belief and reasonable cause can justify waiver of service tax penalty where the levy was under challenge.

Penalty under service tax law may be waived where non-payment occurred under a bona fide belief and reasonable cause is shown. Here, the assessee had not collected service tax from customers, the levy on tour operator services was under challenge before the High Court during the relevant period, and the surrounding dispute created confusion in the field. Tax and interest were later paid. On those facts, Section 80 of the Finance Act, 1994 was applied to grant waiver of penalty, with the principle noted that penalty is not exigible where Section 80 is satisfied even if the demand covers the extended period.

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Issues: Whether penalty under the service tax law was liable to be waived on account of bona fide belief and reasonable cause for non-payment of tax.

Analysis: The appellant had not collected service tax from customers and the levy on tour operators services was under challenge before the High Court during the relevant period. The dispute over the levy created confusion in the field and the tax and interest were subsequently paid. In these circumstances, the non-payment was held to have occurred under a bona fide belief and with reasonable cause, attracting waiver of penalty under Section 80 of the Finance Act, 1994. Reliance was also placed on the principle that penalty is not exigible where Section 80 is satisfied, even if the demand covers the extended period.

Conclusion: Penalty was waived and the appeal succeeded to that extent.

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