Pre-notice payment of service tax and interest justified deletion of penalties under the Finance Act, 1994.

Penalties under Sections 76 and 77 of the Finance Act, 1994 were held unwarranted where service tax and interest were paid before issue of the show cause notice. The service provider had not collected tax from the recipient, and payment was made after departmental detection. On these facts, the absence of deliberate evasion and the assessee's stated lack of awareness of the levy supported deletion of the penalties, and the order setting them aside was upheld.

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Issues: Whether the penalties imposed under Section 76 and Section 77 of the Finance Act, 1994 were sustainable when the service tax and interest had been paid before issue of the show cause notice.

Analysis: The respondent had not collected service tax from the service recipient, and the tax with interest was paid before issuance of the show cause notice after detection by the department. The Commissioner (Appeals) had set aside the penalties on the facts and circumstances of the case, including the respondent's lack of awareness of the levy.

Conclusion: The penalties were not warranted, and the order setting them aside was upheld.

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