Pre-notice payment of service tax and interest can negate Section 76 penalty where the default is cured before notice.

Where the entire service tax liability and interest were discharged before issue of the show cause notice, the delinquency was treated as cured and the relief contemplated by Section 80 of the Finance Act, 1994 applied. Penalty under Section 76 was therefore not sustainable merely because returns had been filed and tax was paid later; once statutory dues were paid before the notice stage, continuation of penalty was unwarranted and it was set aside.

---

---

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.

Analysis: The entire service tax liability and the interest were discharged before the issuance of the show cause notice. In such circumstances, the delinquency stood cured and the case attracted the relief contemplated by Section 80 of the Finance Act, 1994. The fact that the returns had been filed and the tax was later paid did not justify continuance of the penalty once the statutory dues had been paid before the notice stage.

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

---