Service tax paid before notice: penalties under the Finance Act were set aside for want of suppression

Where service tax and interest were paid before issuance of the show cause notice, section 73(3) barred notice for recovery in the absence of suppression. As the tax liability had already been discharged before notice was issued, and no allegation of suppression was made, the statutory precondition for further proceedings was not met. On that basis, penalties under sections 76, 77 and 78 of the Finance Act were held not sustainable and were set aside in favour of the assessee.

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Issues: Whether penalties under Sections 76, 77 and 78 of the Finance Act were sustainable when service tax and interest had been paid before issuance of the show cause notice in the absence of suppression.

Analysis: Section 73(3) of the Finance Act provides that where service tax and interest are paid, no notice shall be served for recovery in such circumstances. The tax liability and interest had already been discharged before the show cause notice was issued after the audit objection was pointed out. In the absence of any allegation of suppression, the statutory bar against issuance of notice applied, and the basis for imposing penalties did not survive.

Conclusion: The penalties under Sections 76, 77 and 78 of the Finance Act were not sustainable and were set aside in favour of the assessee.

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