Service tax on clearing and forwarding activity sustained, but penalty deleted because reasonable cause existed amid unsettled law.

Service tax on clearing and forwarding activity was sustained because the taxability issue had already been settled by a Larger Bench in favour of the Revenue. Penalty was deleted because section 80 permits waiver where the assessee shows reasonable cause, and the earlier uncertainty on the legal position supported non-imposition of penalty. The demand therefore remained confirmed, but the penalty component was set aside, giving only partial relief to the assessee.

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Issues: (i) Whether the appellant was liable to service tax on the activity of clearing and forwarding agent; (ii) Whether penalty was imposable in view of the existence of reasonable cause under section 80.

Issue (i): Whether the appellant was liable to service tax on the activity of clearing and forwarding agent

Analysis: The scope of taxability of clearing and forwarding services had already been settled by the Larger Bench of the Tribunal, which held the issue in favour of the Revenue. In the light of that binding resolution, the demand of service tax was maintained.

Conclusion: The service tax demand was upheld against the assessee.

Issue (ii): Whether penalty was imposable in view of the existence of reasonable cause under section 80

Analysis: Section 80 of the Finance Act permits waiver of penalty where the assessee proves reasonable cause for the failure. Since the disputed legal issue had been unsettled earlier and was subsequently resolved by the Larger Bench, the case was treated as one where penalty was not warranted.

Conclusion: The penalty was set aside in favour of the assessee.

Final Conclusion: The service tax demand remained confirmed, but the penalty component was deleted, resulting in only partial relief to the assessee.

Ratio Decidendi: Where the liability issue is governed by a later authoritative settlement and the assessee shows reasonable cause, penalty may be waived under section 80 even though the tax demand is sustained.

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