Pre-notice payment and binding circulars must be considered before sustaining penalty under service tax law.

Penalty under Section 76 of the Finance Act required reconsideration where service tax had been paid suo motu before notice. The CESTAT noted that Section 73(3) and the Board's circular on pre-notice payment were relevant to whether penalty proceedings could be sustained, and that the circular was binding on departmental authorities even though it had not been placed before the lower authority. The impugned order was set aside and the matter remanded to the Adjudicating Authority for fresh decision after considering the circular and giving the appellant an opportunity of hearing.

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Issues: Whether penalty under Section 76 of the Finance Act was sustainable when the service tax had been paid suo motu and the Board's circular on the subject required consideration.

Analysis: The only controversy was the sustainability of the penalty in the light of Section 73(3) of the Finance Act and the Board's circular clarifying the consequences of payment made before service of notice. The circular had not been placed before the lower authority, but it was nevertheless a relevant clarification binding on the departmental authorities and had to be taken into account while deciding whether penalty proceedings could be sustained on the facts.

Conclusion: The impugned order was set aside and the matter was remanded to the Adjudicating Authority for fresh decision after considering the Board's circular and after granting an opportunity of hearing to the appellant.

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