Reasonable cause defeats service tax penalties under sections 76 and 78, while a separate section 77 penalty survives.

Where tax, interest and part penalty were paid and suppression was not established, section 80 of the Finance Act, 1994 was applied to waive penalties under sections 76 and 78, as reasonable cause disentitled the Revenue from sustaining those punitive consequences. The Tribunal found no basis for those penalties and set them aside. The penalty under section 77 was treated as independent of suppression and non-filing allegations, and no ground was shown to interfere with the nominal penalty imposed under that provision. The appeal therefore succeeded only in part, with relief granted on sections 76 and 78 but not on section 77.

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Issues: (i) Whether the penalties imposed under sections 76 and 78 of the Finance Act, 1994 were sustainable in the absence of suppression and in view of payment of tax, interest and part penalty; (ii) Whether the penalty imposed under section 77 of the Finance Act, 1994 was liable to be interfered with.

Issue (i): Whether the penalties imposed under sections 76 and 78 of the Finance Act, 1994 were sustainable in the absence of suppression and in view of payment of tax, interest and part penalty.

Analysis: The assessees had paid the tax liability together with interest and part penalty after being called upon to do so, and the Revenue did not establish any suppression warranting the punitive provisions under sections 76 and 78. The Tribunal extended the benefit of section 80 of the Finance Act, 1994 and applied the settled approach that reasonable cause disentitles the Revenue from sustaining those penalties.

Conclusion: The penalties under sections 76 and 78 were set aside in favour of the assessee.

Issue (ii): Whether the penalty imposed under section 77 of the Finance Act, 1994 was liable to be interfered with.

Analysis: The penalty under section 77 was treated as independent of the allegation of suppression and non-submission of returns, and no basis was found to interfere with the nominal penalty imposed under that provision.

Conclusion: The penalty under section 77 was upheld against the assessee.

Final Conclusion: The appeal succeeded only in part, with the penalties under sections 76 and 78 cancelled and the penalty under section 77 sustained.

Ratio Decidendi: Where tax, interest and part penalty are paid and suppression is not established, section 80 of the Finance Act, 1994 can be invoked to waive penalties under sections 76 and 78, while a distinct penalty under section 77 may still survive.

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