Late filing penalty under service tax law was sustained but confined to the amended statutory ceiling

Late filing of service tax returns attracted penalty under Section 77 of the Finance Act, 1994, and the Tribunal applied the law in force on the date of the show cause notice. Because the notice was issued after the amendment limiting the penalty, the maximum penalty could not exceed the amended ceiling of Rs. 2,000. The assessee's plea of reasonable cause under Section 80 was not accepted, as the explanation for delay was found unconvincing, so the penalty was sustained but confined to the statutory maximum.

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Issues: Whether penalty for late filing of service tax returns was sustainable under Section 77 of the Finance Act, 1994, and whether the penalty could exceed the amended maximum of Rs. 2,000 when the show cause notice was issued after the amendment.

Analysis: The assessee had failed to file returns for the relevant period and sought waiver on the ground of reasonable cause under Section 80 of the Finance Act, 1994. The Tribunal held that penalty is to be imposed with reference to the law in force on the date of issuance of the show cause notice. Since the notice was issued after the amendment to Section 77 by Section 138 of the Finance Act, 1999, the penalty could not exceed the amended statutory ceiling. The explanation for the delay was found unconvincing, so the levy of penalty was maintained.

Conclusion: Penalty under Section 77 of the Finance Act, 1994 was upheld, but it was restricted to Rs. 2,000 only, in favour of the assessee to that extent.

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