Section 73(3) protection bars service tax penalties when tax and interest are paid before notice.

Service tax and interest paid before issuance of the show-cause notice attracted the statutory protection in Section 73(3) of the Finance Act, 1994, which bars further proceedings where tax and interest have been discharged. On that basis, the penalties imposed for delayed filing of returns and delayed payment of service tax under Sections 76 and 77 could not be sustained. The appellate relief was granted and the penalties were set aside.

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Issues: Whether penalties imposed for delayed filing of service tax returns and delayed payment of service tax were sustainable when the tax and interest had been paid before issuance of the show-cause notice.

Analysis: The appellant had paid the service tax together with interest before the show-cause notice was issued. Section 73(3) of the Finance Act, 1994 provides that where tax and interest are paid, further proceedings need not be initiated by issue of a notice. In these circumstances, the default was covered by the statutory protection against further proceedings.

Conclusion: The penalties under Sections 76 and 77 of the Finance Act, 1994 were set aside, and the appeal succeeded.

Ratio Decidendi: When service tax and interest are paid before issuance of the show-cause notice, Section 73(3) of the Finance Act, 1994 bars further proceedings and the consequential penalties cannot be sustained.

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