Archana Wadhwa, Judicial Member. - Being aggrieved with that portion of the impugned Order of the Commissioner (Appeals), vide which he has set aside the penalty imposed upon the respondents, the Revenue has filed the present appeal.

2. As per facts on record, the respondent-company is an Association for Economic Affairs of the Ministry for Economic Affairs and Trade of the Russian Federation. They have a registered office and have entered into a contract with Rourkela Steel Plant located at Rourkela for providing technical services to RSP, for which purposes, they were to delegate specialists. In terms of the said contracts, all the taxes and duties were to be borne by Rourkela Steel Plant.

3. A dispute arose between the Department and the respondents for levy of service tax for the taxable service being provided by the respondents. They clarified the position and submitted that any tax, if leviable, has to be borne by RSP and also made a request to M/s. Rourkela Steel Plant to make arrangements for payment of Service Tax. After taking the legal opinion etc., the Service Tax was deposited by RSP along with the interest leviable thereon. The matter was taken up for adjudication and the original adjudicating authority, apart from confirming the Service Tax so deposited by the respondents, also imposed a penalty upon them under the provisions of sections 76, 77 and 73 of the Finance Act, 1994. On an appeal against the above Order, the Commissioner (Appeals) confirmed the demand and interest, but set aside the personal penalties. Revenue has filed the present appeal against the same.

4. We have heard Sri T.K. Kar, learned SDR for the Revenue and Sri S.K. Bagaria, learned Advocate for the respondent-company.

5. Section 80 of the Finance Act, 1994 is to the following effect :-

"Notwithstanding anything contained in the provisions of section 76, section 77, section 78 or section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure."

As is seen from the above section, no penalty can be imposed upon the assessee if the failure, for which the penalty is imposable, is on account of a reasonable cause. The respondents have contended that they were a foreign person having their registered office at Moscow and do not have any place of business in India; that as per the terms of the contract with RSP, all the tax payable in India, was to be borne by them; that there was some dispute as regards the payment of tax on the services being provided by the respondents; that as soon as they came to know that Service Tax is leviable on the services being provided by them, they took up the matter with M/s. RSP and M/s. RSP agreed to pay the amount in question and subsequently, paid the same along with the interest. In the aforesaid circumstances, there was a reasonable cause for alleged failure on the respondents’ part. Shri Bagaria, learned Advocate has also referred to a number of decisions to show what would be ‘reasonable cause’ in a particular set of facts.

6. The Commissioner (Appeals) while setting aside the penalty has observed as under :-

"16. Applying the principles laid down in the above judgments it is clear that the Appellant, on the basis of the terms and conditions of the contract with RSP, was under a reasonable belief that the liability for payment of Service Tax was on RSP. The Appellant does not have a place of business in India and is a non-resident. It entered into contracts with RSP clearly stipulating that all taxes and duties payable in India will be borne by RSP and in view of such terms of the contract it proceeded on the basis that the liability is that of RSP. RSP also accepted this position. In these circumstances, it cannot be said that the appellant did not act as a reasonable man of ordinary prudence acting under normal circumstances or that it did not act bona fide. I accordingly hold that there was