Suppression not proved, so extended limitation and service tax penalties were set aside despite payment of tax and interest.

Penalty under Section 78 and the daily penalty under Section 76 of the Finance Act, 1994 were held unsustainable where service tax and interest had been paid and the Revenue failed to prove suppression. The assessee's explanation was that tax on Goods Transport Service was discharged when freight was incurred by it, and non-payment arose only for freight incurred by the CHA under a bona fide belief that liability rested on the CHA. In the absence of contrary evidence, the extended period of limitation could not be invoked and the factual basis for penalty was not established; the penalties were set aside.

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Issues: Whether penalty under Section 78 and Section 76 of the Finance Act, 1994 was sustainable when the service tax demand had been paid with interest and the department had to establish suppression to invoke the extended period of limitation.

Analysis: The assessee explained that service tax on Goods Transport Service was paid when freight was incurred by them, and that tax was not paid when the CHA incurred the freight because of a bona fide belief that the liability rested on the CHA. No contrary evidence was produced by the Revenue. In the absence of proof of suppression, the extended period of limitation could not be invoked for confirmation of the demand, and the factual basis for penalty was not established.

Conclusion: The penalty under Section 78 and the daily penalty under Section 76 were unsustainable and were set aside in favour of the assessee.

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