Penalty u/s 78 of Finance Act Not Invokable in Absence of Invocation of Extended Limitation Period: CESTAT

The Chandigarh Bench of CESTAT ruled that penalty under Section 78 of the Finance Act, 1994 cannot be imposed without invoking the extended limitation period. P S Construction, engaged in work contracts, faced a show cause notice alleging non-inclusion of free materials' value in taxable amounts under the Composition Scheme, leading to a service tax shortfall of Rs. 2,15,86,841/-. The adjudicating authority invoked extended limitations, imposing tax and penalty. CESTAT found discrepancies in the notice, including lack of investigation and false allegations, thus setting aside the penalty due to unproven wilful suppression and inapplicability of extended limitations. The division bench noted that amendments to Section 73 post-2013 did not affect this case. This decision highlights procedural lapses in tax assessments and the necessity of substantial evidence before imposing penalties.