Suppression-based service tax penalties fail without proof of deliberate concealment or conscious non-payment; section 77 penalty survives.

Penalties under sections 76 and 78 of the Finance Act, 1994 were held unsustainable where the Revenue failed to prove suppression or conscious non-payment of tax liability. The assessees had treated export consignments as non-taxable, registered and began paying tax once aware of the liability, and no material showed deliberate concealment. The penalty under section 77 was separately sustained, as the relief on suppression did not extend to that default. The stated principle is that suppression-based penalties require proof of deliberate concealment or conscious non-payment, and the burden lies on the Revenue.

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Issues: (i) Whether penalties under sections 76 and 78 of the Finance Act, 1994 were sustainable in the absence of suppression or knowledge of liability; (ii) Whether the penalty under section 77 of the Finance Act, 1994 was liable to be sustained.

Issue (i): Whether penalties under sections 76 and 78 of the Finance Act, 1994 were sustainable in the absence of proved suppression or knowledge of liability.

Analysis: The assessees had explained that they were dealing with export consignments and were under the belief that such consignments were not liable to service tax. They registered themselves and started paying tax once they became aware of the liability. No material from the appellants showed conscious knowledge of liability followed by deliberate non-payment. The burden to prove suppression lay on the Revenue and was not discharged.

Conclusion: Penalties under sections 76 and 78 were set aside in favour of the assessees.

Issue (ii): Whether the penalty under section 77 of the Finance Act, 1994 was liable to be sustained.

Analysis: The relief granted on the larger question of suppression did not extend to the penalty under section 77, which was separately maintained by the Tribunal.

Conclusion: The penalty under section 77 was upheld against the assessees.

Final Conclusion: The challenge succeeded only in part, with the penalties under sections 76 and 78 being annulled while the penalty under section 77 remained in force.

Ratio Decidendi: Penalties predicated on suppression cannot be sustained unless the Revenue discharges the burden of proving deliberate concealment or conscious non-payment of tax liability.

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