Pre-notice tax payment does not erase interest and penalty liability where suppression and wilful non-compliance are established.

Pre-notice payment of service tax and interest does not automatically wipe out liability for interest and penalties where non-compliance is found to be wilful and accompanied by suppression. The Tribunal noted that the assessee had rendered taxable cable operator and multi system operator services without meeting statutory requirements during the relevant period, and that tax and interest were paid only after departmental intervention. The appellate order setting aside interest and penalties solely because payment was made before the show cause notice was held unsustainable; the original authority's findings of deliberate evasion and suppression, together with the imposed interest and penalties, were restored.

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Issues: Whether payment of service tax and interest before issuance of show cause notice disentitles the Revenue from recovering interest and imposing penalties under sections 76, 77 and 78 of the Finance Act, 1994 in cases involving deliberate evasion and suppression.

Analysis: The respondents had rendered taxable cable operator and multi system operator services and had not complied with the statutory requirements during the relevant period. The original authority recorded a finding of deliberate evasion and suppression, appropriated the tax and interest already paid, and imposed penalties. The appellate order set aside the interest and penalties only on the ground that the dues had been paid before the show cause notice. The Tribunal held that such pre-notice payment did not, by itself, erase the liability where the non-compliance was found to be wilful and the assessee had paid only after departmental intervention. The earlier decisions relied upon by the Commissioner (Appeals) were treated as no longer representing the correct position.

Conclusion: The setting aside of interest and penalties was unsustainable. The Revenue's appeals were allowed and the original authority's imposition of interest and penalties was restored.

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