Penalty under Section 78 unsustainable where tax was paid, credit was available, and no intent to evade was shown.

Penalty under Section 78 of the Finance Act, 1994 was held unsustainable where the service tax demand had been admitted and paid, the amount was available as credit, and no intention to evade tax was established. Mere non-filing of returns, without further material showing suppression or wilful default, was treated as insufficient to attract the penal provision. The penalty was therefore set aside.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was sustainable where the service tax demand was admitted and paid, the amount was available as credit, and there was no established intention to evade tax.

Analysis: The demand was not disputed and had already been paid. The explanation accepted by the Tribunal was that the tax was available as credit and therefore no intent to evade could be inferred. Mere failure to file returns, without more, was held insufficient to establish suppression so as to attract penalty under Section 78.

Conclusion: The penalty under Section 78 was not sustainable and was set aside.

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