Pre-notice payment of tax and interest bars penalty where there is no suppression or intent to evade service tax.

Where service tax and interest were paid before the show cause notice, and the liability had already been admitted, the statutory benefit under Section 73(3) applied. The recorded facts did not show suppression of facts, contumacious conduct, or intent to evade tax, so the basis for penalty did not survive. On that footing, the penalties under Sections 77 and 78 were set aside, and the assessee was held entitled to refund of the excess tax, proportionate interest, and any penalty deposited.

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Issues: Whether the assessee was entitled to the benefit of Section 73(3) of the Finance Act, 1994 on payment of tax and interest before the show cause notice, and whether the penalties under Sections 77 and 78 could be sustained.

Analysis: The liability had been admitted and the service tax was deposited along with interest before issuance of the show cause notice. The facts recorded did not establish any contumacious conduct, suppression of facts, or intent to evade service tax. In such circumstances, the statutory benefit available where tax and interest are paid under proper intimation applied, and the foundation for penal action under the cited provisions did not survive.

Conclusion: The assessee was entitled to the benefit of Section 73(3) of the Finance Act, 1994. The penalties under Sections 77 and 78 were set aside, and the assessee was held entitled to refund of the excess tax, proportionate interest, and any penalty deposited.

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