Pre-notice payment of service tax and interest bars the show cause notice and makes Section 76 penalty unsustainable.

Where service tax and interest were paid before issue of the show cause notice, the statutory bar in Section 73(3) applied and the notice ought not to have been issued. On that footing, the foundation for penalty proceedings was absent, because the liability had already been discharged before notice. Penalty under Section 76 was therefore not sustainable and was set aside in favour of the assessee.

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Issues: Whether penalty under Section 76 of the Finance Act, 1994 was sustainable when the service tax and interest were paid before issuance of the show cause notice under Section 73(3) of the Finance Act, 1994.

Analysis: Section 73(3) bars issuance of a show cause notice where the assessee pays the entire service tax liability with interest before notice. Since the payment was made prior to the notice, the notice itself ought not to have been issued, and the foundation for penalty proceedings was absent.

Conclusion: Penalty under Section 76 was not sustainable and was set aside in favour of the assessee.

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