Pre-notice payment of service tax and interest bars penalty where no fraud or suppression is shown.

Penalty under Sections 76 and 77 of the Finance Act, 1994 was not sustainable because the service tax and interest had been paid before issuance of the show cause notice. The matter fell within the Board's circular dated 17-12-2004, which treated such defaults as remediable by recovery of tax with interest and excluded penalty absent fraud, collusion, suppression, wilful misstatement or intent to evade. Following the Tribunal's earlier view, the impugned penalty order was set aside in favour of the assessee.

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Issues: Whether penalty under Sections 76 and 77 of the Finance Act, 1994 was sustainable when the service tax and interest were paid before issuance of the show cause notice.

Analysis: The service tax relating to the relevant period had been paid along with interest before the show cause notice was issued. The case fell within the Board's circular dated 17-12-2004, which limited the consequence of such defaults to recovery of tax with interest and excluded penalty in the absence of deliberate fraud, collusion, suppression, wilful misstatement, or intent to evade. The matter was also covered by the Tribunal's earlier view that where tax liability and interest are discharged before notice, penalty is not warranted.

Conclusion: Penalty was not leviable and the impugned order was set aside in favour of the assessee.

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