Advance payment of service tax and interest bars further penalty proceedings under Section 73(3) of the Finance Act, 1994

Where service tax and interest were paid before issuance of the show cause notice, further penalty proceedings were barred under Section 73(3) of the Finance Act, 1994. The assessee had discharged the tax liability with interest in advance of notice, and the appellate authority found no basis to sustain penalty. The departmental challenge therefore failed, and the penalty was held not sustainable.

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Issues: Whether penalty could be sustained when the service tax along with interest had been paid before issuance of the show cause notice, in view of Section 73(3) of the Finance Act, 1994.

Analysis: The assessee had discharged the tax liability together with interest before the show cause notice was issued. Section 73(3) of the Finance Act, 1994 permits no further action once tax and interest are paid before notice. The lower appellate authority had also considered the plea relating to penalty and found no basis for interference.

Conclusion: Penalty was not sustainable and the departmental appeal failed.

Ratio Decidendi: Where service tax and interest are paid before issuance of the show cause notice, Section 73(3) of the Finance Act, 1994 bars further proceedings on that demand.

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