Retrospective validation of service tax levy sustains demand but does not create personal penalty for the earlier period.

Retrospective validation of the service tax levy sustained the tax demand for the relevant period, but it did not authorise imposition of personal penalty for a period when the levy had earlier been held ultra vires. The Tribunal held that a validating amendment could preserve the tax liability, yet it could not retrospectively create penal consequences on that basis. Penalty was therefore set aside and the Revenue's challenge to that extent failed.

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Issues: Whether, after retrospective validation of the service tax levy under the Finance Act, 2000, personal penalty could still be imposed for the relevant period.

Analysis: The levy of service tax stood sustained by retrospective amendment, but the retrospective validation could not create penal consequences for a period when the levy had earlier been held ultra vires. The Tribunal followed its earlier view that, although tax demand survives by reason of the validating provision, penalty is not imposable on that basis.

Conclusion: Penalty was rightly set aside, and the Revenue's challenge to that part of the order failed.

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