Service tax penalty must consider waiver for bona fide default; order set aside and remanded for fresh hearing.

Penalty in a service tax matter could not be sustained where the appellate authority failed to consider the statutory discretion to waive penalty for bona fide default under Section 80 of the Finance Act, 1994. The order had proceeded on penal principles drawn from Section 11AC of the Central Excise Act, 1944 instead of the correct service tax framework, and the assessee was not given proper hearing on that basis. The penalty determination was therefore set aside and the matter remanded to the Commissioner (Appeals) for fresh decision under the applicable service tax provisions.

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Issues: Whether the penalty imposed in a service tax matter could be sustained without considering the statutory power to waive penalty under Section 80 of the Finance Act, 1994, and whether the matter required remand for fresh decision.

Analysis: The demand related to service tax, and the appellate authority had proceeded on the basis of penal consequences akin to Section 11AC of the Central Excise Act, 1944. The relevant service tax provisions, including the statutory discretion to waive penalty where bona fide circumstances are shown, were not taken into account. Since the penalty question had to be examined under the correct service tax framework and the assessee had to be given an opportunity of hearing, the order could not be sustained as passed.

Conclusion: The penalty order was set aside, the pre-deposit requirement was waived, and the matter was remanded to the Commissioner (Appeals) for fresh decision after hearing the appellant.

Final Conclusion: The appellant succeeded to the extent that the impugned penalty determination was annulled and reconsideration was directed under the proper service tax provisions.

Ratio Decidendi: In a service tax case, penalty cannot be affirmed without considering the statutory waiver provision applicable to bona fide default, and an order passed under an incorrect penal framework is liable to be set aside and remanded.

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