Pre-notice payment of service tax and revenue neutrality supported relief from penalty under the Finance Act, 1994.

Pre-notice payment of service tax and interest on GTA services, coupled with corresponding admissible Cenvat credit, was treated as revenue neutral. On that footing, no occasion was seen for issuance of a show cause notice under Section 73(3) of the Finance Act, 1994, and the assessee was held entitled to relief from penalty under Section 80. Penalty under Section 76 was therefore not warranted because the tax demand had been discharged before the notice and the circumstances did not justify penal action.

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Issues: Whether penalty under Section 76 of the Finance Act, 1994 was liable to be imposed when the service tax demand and interest had been paid before issuance of the show cause notice and the situation was revenue neutral.

Analysis: The amount of service tax on GTA services was paid before the show cause notice along with interest. The payment of service tax in cash and availment of corresponding Cenvat credit, where credit was admissible, was treated as a revenue-neutral exercise. In view of the pre-notice payment, no occasion was seen for issuance of a show cause notice under Section 73(3) of the Finance Act, 1994, and the case was considered fit for relief from penalty under Section 80 of the Finance Act, 1994.

Conclusion: Penalty under Section 76 of the Finance Act, 1994 was not warranted and relief was granted in favour of the assessee.

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