Reasonable cause protected the assessee from penalties where service tax was paid with interest and bona fide belief was accepted.

Penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were set aside because the assessee showed reasonable cause under Section 80. The service had entered the tax net only from 16-6-2005, and the assessee's bona fide belief about the scope of Notification No. 6/2005-S.T. and the exemption threshold was accepted. Mere non-registration was not treated as positive suppression of facts. As the service tax liability had been paid with interest, statutory relief from penalty was held available.

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Issues: Whether the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994 were liable to be set aside by invoking the reasonable-cause protection under Section 80 of the Finance Act, 1994.

Analysis: The service in question was brought within the tax net only from 16-6-2005, and the assessee's claim of bona fide belief regarding the scope of Notification No. 6/2005-S.T. dated 1-3-05 and the availability of the exemption threshold was accepted. Mere failure to obtain registration, by itself, was not treated as positive suppression of facts. Since the service tax liability had been discharged along with interest, the case was found fit for the statutory relief against penalty.

Conclusion: The penalties under Sections 76, 77 and 78 were rightly set aside under Section 80 of the Finance Act, 1994, and the assessee succeeded on the penalty issue.

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