Reasonable cause protected late service tax return filing, reducing penalty where bona fide exemption confusion existed.

Late filing of service tax returns under Section 77 of the Finance Act, 1994 was treated as excusable where the assessee acted under a bona fide misunderstanding that the exemption for Pandal and Shamiana Contractors also covered Mandap Keepers. A contemporaneous trade notice showing similar confusion among assessees supported the finding of reasonable cause under Section 80, so full penalty was not justified. The view that penalty under Section 77 was mandatory was rejected because it did not account for the statutory protection in Section 80. The penalty was therefore reduced, with partial relief granted.

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Issues: Whether penalty for late filing of returns under Section 77 of the Finance Act, 1994 was exigible in full, or whether it was liable to be reduced in view of reasonable cause under Section 80 of the Finance Act, 1994.

Analysis: The appellant did not file the returns within time under the bona fide impression that the exemption granted to Pandal and Shamiana Contractors also covered Mandap Keepers. The confusion was supported by the contemporaneous trade notice noting misunderstanding among assessees regarding the taxability of the service. In these circumstances, the failure to file the returns within the prescribed period was found to have been caused by reasonable cause, attracting the protection of Section 80. The reliance placed on the view that penalty under Section 77 was mandatory was held inapplicable because that view did not consider the operation of Section 80.

Conclusion: The penalty was not sustained in full and was reduced to Rs. 5,000; the appellant obtained partial relief.

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