Equal penalty under Section 78 set aside where tax, interest, and reduced penalty were paid before notice, with interest liability remanded.

Equal penalty under Section 78 could not be sustained where the assessee paid service tax before the show cause notice, paid interest, and also discharged the reduced 15% penalty within the prescribed time; the penalty was set aside. The authorities had not conclusively established that the interest payment related to a different liability, so that factual question was not sufficient to support the full penalty. The question of whether the interest paid applied to the present demand was remanded to the Original Authority for verification and fresh computation, if necessary, resulting in partial relief to the assessee.

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Issues: (i) Whether equal penalty under Section 78 was sustainable where service tax had been paid before issuance of the show cause notice and reduced penalty had also been paid. (ii) Whether the interest payment made by the assessee related to the present demand or to some earlier liability, warranting verification by the Original Authority.

Issue (i): Whether equal penalty under Section 78 was sustainable where service tax had been paid before issuance of the show cause notice and reduced penalty had also been paid.

Analysis: The assessee had discharged the service tax on being pointed out by audit, paid interest before the notice, and also paid reduced penalty of 15% within the permissible time. The record did not support a clear finding that the interest payment was unrelated to the present demand. In these circumstances, the basis for sustaining the full penalty was not established.

Conclusion: The equal penalty under Section 78 was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the interest payment made by the assessee related to the present demand or to some earlier liability, warranting verification by the Original Authority.

Analysis: The authorities had assumed that the interest payment pertained to another audit objection, but that factual aspect had not been specifically verified or conclusively brought on record. The matter therefore required factual determination at the original stage to identify the correct liability, if any.

Conclusion: The issue of interest liability was remanded to the Original Authority for verification and appropriate computation, if required.

Final Conclusion: The penalty demand failed, but the question of interest was left for fresh factual determination by the Original Authority, so the matter was disposed of by remand with partial relief to the assessee.

Ratio Decidendi: Where the assessee pays the tax before notice and the reduced statutory penalty within time, equal penalty cannot be sustained unless the department establishes the factual basis for denying the concessional treatment.

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