Reasonable cause barred service tax penalty where mandap keeper taxability for marriage functions was bona fide disputed.

Section 80 of the Finance Act, 1994 protected an assessee from penalty under Sections 76, 77 and 78 where reasonable cause was shown for non-payment of service tax. The text explains that service tax had been paid with interest and that the assessee's bona fide belief that mandap keeper service for marriage-related functions was not taxable earlier constituted reasonable cause. As the explanation later brought social functions, including marriages, within the scope of mandap keeper service, the statutory penalty bar applied and the penalty was not sustainable.

---

---

Issues: Whether penalty under Sections 76, 77 and 78 of the Finance Act, 1994 was liable to be sustained where the assessee had paid the service tax along with interest and claimed reasonable cause based on bona fide belief regarding taxability of mandap keeper service for marriage-related functions.

Analysis: Section 80 of the Finance Act, 1994 barred imposition of penalty under Sections 76, 77 and 78 where the assessee proved reasonable cause for the failure. The explanation inserted to the service tax provision brought social functions, including marriage, within the scope of mandap keeper service, and the assessee's conduct was consistent with a bona fide understanding that such activity was not taxable earlier. In these circumstances, the statutory protection against penalty applied.

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

---