Penalty under service tax law set aside where suppression was not proved and tax was paid with interest after detection.

Service tax demand was undisputed, but the Tribunal found that penalties under sections 76, 77 and 78 were unsustainable because suppression was not established. A statement relied on by the department, recorded after payment of tax and interest, did not prove that the assessee had prior knowledge of the liability and still failed to register or pay tax. On those facts, the extended period could not be invoked for penalty purposes, and the penalties were set aside in favour of the assessee.

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Issues: Whether penalties imposed under sections 76, 77 and 78 of the Finance Act, 1994 were sustainable where service tax was paid with interest after detection and the assessee claimed absence of knowledge and suppression.

Analysis: The demand of service tax was not disputed. The only controversy related to penalties. The Tribunal held that the statement relied upon by the department, recorded after payment of tax and interest, did not justify an inference that the assessee had earlier knowledge of liability but still failed to register or pay tax. On the facts, suppression was not established and the extended period could not be invoked for penalty purposes.

Conclusion: The penalties under sections 76, 77 and 78 were set aside in favour of the assessee.

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