Penalty under Section 78 not justified where the dispute was only about tax quantum and suppression was not established.

Penalty under Section 78 of the Finance Act, 1994 was held not to be warranted because the record showed departmental awareness of the activity through an earlier show cause notice and subsequent payment of service tax and interest. The dispute was treated as one primarily relating to quantum of tax, not deliberate suppression with intent to evade, so the statutory basis for invoking penal consequences was not made out. The department's challenge to deletion of the penalty failed.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was imposable in the facts of the case.

Analysis: The period in dispute was January 2014 to March 2015. The earlier show cause notice and the subsequent payments made towards service tax and interest showed that the department was aware of the activity and that the matter primarily concerned quantum of tax rather than deliberate suppression with intent to evade. In these circumstances, the basis for invoking penalty under Section 78 was not established.

Conclusion: Penalty under Section 78 of the Finance Act, 1994 was not imposable and the department's challenge to its deletion failed.

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