Pre-notice payment and section 73(3) protection barred late fee demand for short-paid service tax.

Pre-notice payment of short-paid service tax with interest, together with intimation to the department, brought the case within the protection of section 73(3) of the Finance Act, 1994. Once that statutory benefit applied, the tax already paid before the show cause notice was treated as sufficient, and a separate notice for the amount so discharged was unnecessary. In that setting, the late fee prescribed under section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 could not be sustained and was set aside.

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Issues: Whether late fee under section 70 of the Finance Act, 1994 could be sustained when the assessee had paid the short-paid service tax with interest before issuance of show cause notice and was held entitled to the benefit of section 73(3) of the Finance Act, 1994.

Analysis: The assessee had detected the short payment during investigation, discharged the service tax liability with interest before issuance of the notice, and informed the department. Once section 73(3) was held applicable, the statutory scheme treated the pre-notice payment as sufficient to obviate issuance of a notice for the amount so paid. In that situation, the imposition of late fee under section 70, read with Rule 7C of the Service Tax Rules, 1994, could not survive.

Conclusion: The late fee demand under section 70 of the Finance Act, 1994 was wrongly imposed and was set aside in favour of the assessee.

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