Non-disclosure of exempt commission income justified extended limitation and penalty where liability was knowingly not reported.

Commission income not disclosed in monthly returns had to be reported even if the assessee believed it was exempt, and the failure to make proper disclosure supported invocation of the extended limitation period. The assessee's claim that tax was unpaid due to financial hardship did not negate the apparent awareness of liability or the deliberate non-payment and non-disclosure. On these facts, the plea of absence of mens rea was rejected, and the service tax demand together with the penalty under Section 78 was upheld.

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Issues: Whether the demand of service tax and the penalty under Section 78 of the Finance Act, 1994 were sustainable where the commission income was not disclosed in the returns and the assessee claimed exemption and absence of mens rea.

Analysis: The appeal turned on limitation and the assessee's disclosure obligations. The record showed that the commission income was not declared in the monthly returns, and even if the assessee believed the amount was exempt, it was still required to disclose it as exempted income. The failure to disclose, coupled with the plea that tax was not paid because of financial hardship, indicated awareness of liability and a deliberate decision not to pay tax or make proper disclosure. On these facts, the invocation of the extended period was justified and the plea of absence of mens rea did not assist the assessee.

Conclusion: The demand and penalty were upheld and the challenge failed.

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