In a recent judgment (Global Telecom Versus Commissioner of Service Tax Mumbai - 2009 -TMI - 33244 - CESTAT MUMBAI), honorable tribunal held that:

"I am unable to accept the plea that penalties under Sections 76 and 77 were not imposable by reason of the fact that service tax with interest had been paid prior to issuance of the show-cause notice. The plea is not supported by any caselaw either. Further, I am inclined to agree with the Commissioner when he says that neither ignorance of law nor confusion is a reasonable cause for extending the benefit of Section 80 to the assessee. The assessee got registered with the Department as early as in June, 2004. For the first quarter of the year (January to March), they ought to have paid tax on or before 5th April; for the second quarter (April to June) the due date was 5th July; for the next quarter (July to September) the due date was 5th October. The payments were respectively made on 14th October, 30th October, and 3rd November. The service tax returns were filed on 24th December. It cannot be assumed, in these circumstances, that there was any confusion in the mind of the assessee after 06/06/2004, the date on which they got registered with the Department for the purpose of paying service tax in the category of business auxiliary service. Non-recovery of tax from clients is also not a valid excuse for non-payment of tax, nor can the plea of ignorance of law be accepted as a defense vis-a-vis the demand of service tax. However, it appears, the assessee had no intent to evade payment of service tax, which is clear from the above facts. But this aspect is not relevant to Sections 76 and 77. It would follow that the assessee cannot escape penal liability under these provisions. The revisional authority was right in imposing penalties on them under Sections 76 and 77. To this extent, the impugned order has to be sustained and it is ordered accordingly."

 Global Telecom Versus Commissioner of Service Tax Mumbai - 2009 -TMI - 33244 - CESTAT MUMBAI

Non-recovery of tax from clients is not a defense; service tax penalties apply despite late payment or collection. Non-recovery of service tax from clients and ignorance of law are not valid excuses for non-payment; registration imposes quarterly payment and filing obligations, and late payment or late returns-even if tax with interest is later deposited-do not constitute reasonable cause to avoid penal liability under the service tax penalty framework. Lack of intent or administrative confusion post-registration does not bar imposition of penalties, and revisional assessment of penalty is supportable on that basis.