Appellant not liable for penalty under Section 78 for non-payment of Service Tax.

The appellant was found not liable for penalty under Section 78 for non-payment of Service Tax on Man Power Supply Service. The appellant had paid the Service Tax with interest promptly after an audit revealed the issue. The court determined that there was no suppression of facts and the non-payment was due to a genuine belief that the service provided to a Special Economic Zone unit was not taxable. As a result, the penalty under Section 78 was set aside, and the demand for Service Tax and interest was upheld in favor of the appellant.

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Issues:
- Liability for penalty under Section 78 for non-payment of Service Tax on Man Power Supply Service

Analysis:

The case involved the question of whether the appellant was liable for penalty under Section 78 for not discharging the Service Tax liability on Man Power Supply Service. The appellant had paid the Service Tax along with interest after it was pointed out during an audit. A show cause notice was issued proposing demand of Service Tax, interest, and penalty. The adjudicating authority confirmed the demand and imposed a penalty equal to the Service Tax amount. The appellant appealed only for the waiver of the penalty.

The appellant's counsel contended that they were not contesting the Service Tax liability as it had been paid along with interest. The issue was the imposition of penalty under Section 78. They argued that there was no suppression of facts on their part and the non-payment was due to a genuine belief that the service provided to a Special Economic Zone (SEZ) unit was not taxable.

The Assistant Commissioner representing the Revenue reiterated the findings of the impugned order. The Member (Judicial) carefully considered the submissions and the records. It was noted that the appellant had recorded all transactions in their books of account. The appellant explained that they believed the service provided to the SEZ unit was not taxable. They paid the Service Tax and interest immediately after the audit pointed out the issue, without any malicious intent. The Member (Judicial) found that the appellant's actions were in good faith, and as per Section 73(3) of the Finance Act, 1994, no show cause notice should have been issued by the department. Therefore, the penalty under Section 78 was deemed unwarranted.

Consequently, the penalty under Section 78 was set aside, and the demand for Service Tax and interest was maintained. The appeal was allowed in favor of the appellant.

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