Service tax penalties under Sections 76 and 78 fail absent proof of deliberate evasion; Section 77 penalty survives.

Penalties for service tax default were set aside under Sections 76 and 78 because the assessee had paid the tax, did not dispute the liability, and the department failed to show deliberate non-payment or an intention to evade. The assessee's plea of lack of awareness of the liability during the relevant period was accepted, so the impugned penalties under those provisions were deleted. The penalty under Section 77 was upheld because no sufficient ground was shown for interference. The appeal therefore succeeded only in part, with relief confined to deletion of penalties under Sections 76 and 78.

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Issues: (i) Whether penalties imposed under Section 76 and Section 78 of the Finance Act, 1994 were sustainable when the assessee claimed lack of awareness of the service tax liability during the relevant period; (ii) Whether the penalty imposed under Section 77 of the Finance Act, 1994 called for interference.

Issue (i): Whether penalties imposed under Section 76 and Section 78 of the Finance Act, 1994 were sustainable when the assessee claimed lack of awareness of the service tax liability during the relevant period.

Analysis: The assessee did not dispute the service tax liability itself and had paid the tax. The plea was that the liability was not known during the relevant period, and no statement admitting knowledge of liability had been recorded. The burden was not discharged by the department to show that the non-payment was due to deliberate conduct or an intention to evade payment of service tax.

Conclusion: The penalties under Section 76 and Section 78 of the Finance Act, 1994 were set aside in favour of the assessee.

Issue (ii): Whether the penalty imposed under Section 77 of the Finance Act, 1994 called for interference.

Analysis: No sufficient ground was made out to disturb the penalty under Section 77.

Conclusion: The penalty under Section 77 of the Finance Act, 1994 was upheld against the assessee.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalties under Sections 76 and 78, while the penalty under Section 77 remained undisturbed.

Ratio Decidendi: Penalties for service tax default under Sections 76 and 78 are not justified where the assessee's non-payment is shown to be due to lack of awareness of liability and the department fails to establish deliberate evasion.

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