Service tax penalty barred where tax and interest were paid before notice and reasonable cause for delay was shown.

Service tax penalty was held unsustainable where the tax with interest had been paid before issuance of the show cause notice and the assessee established reasonable cause for the delay. The Tribunal applied Section 80 of the Finance Act, 1994 and held that, once reasonable cause is shown, penalty is not exigible for violations under Sections 76, 77 and 78. It distinguished cases where payment was made only after notice or adjudication and accepted the assessee's software-related difficulty as sufficient explanation. Penalty was therefore set aside.

---

---

Issues: Whether penalty for delay in payment of service tax was sustainable when the tax with interest had been paid before issuance of the show cause notice and the assessee had shown reasonable cause for the delay.

Analysis: The amount of service tax along with interest had been paid before the show cause notice was issued. The facts were distinguished from cases where payment was made after the notice or after adjudication. The Tribunal relied on its earlier view that where tax and interest are paid before the show cause notice, penalty is not warranted. It also noted that a taxpayer-friendly scheme had been introduced and that the assessee's explanation of software-related difficulty constituted reasonable cause. Section 80 of the Finance Act, 1994 was applied to hold that no penalty was exigible where reasonable cause for failure was established in respect of violations under Sections 76, 77 and 78.

Conclusion: Penalty was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: Where service tax with interest is paid before issuance of the show cause notice and reasonable cause for the delay is shown, penalty under the service tax provisions is not leviable by virtue of Section 80 of the Finance Act, 1994.

---