Pre-notice payment of service tax and interest can defeat penalty, while disputed recovery-based demand may require fresh evidence review.

Penalty is generally not justified where the service tax and interest for the disputed period are paid before issue of the show cause notice, as the statutory basis for penal action is not attracted on those facts. For a later-period demand based on alleged electricity-related service charges, the absence of supporting documentary evidence was material, although an affidavit supported the assessee's claim that such recoveries had stopped. The matter was therefore remanded for de novo consideration on evidence, leaving the substantive tax question open for fresh adjudication.

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Issues: (i) Whether penalties were exigible when the service tax and interest had already been paid before issue of the show cause notice; (ii) Whether the demand raised for the later period could be sustained without documentary support when the assessee claimed that no service charges were collected.

Issue (i): Whether penalties were exigible when the service tax and interest had already been paid before issue of the show cause notice.

Analysis: The liability for the disputed period had been discharged along with interest before the show cause notice. In such circumstances, the Tribunal treated the case as one where the statutory preconditions for penal action were not attracted, and followed its earlier view that when tax and interest stand paid before notice, penalty is not warranted.

Conclusion: Penalties were not exigible and the Revenue's challenge failed.

Issue (ii): Whether the demand raised for the later period could be sustained without documentary support when the assessee claimed that no service charges were collected.

Analysis: The demand for the later period rested on alleged service charges on electricity-related recoveries. The assessee asserted that such recoveries had stopped, but documentary evidence for the relevant period was not produced before the Tribunal. At the same time, an affidavit supported the assertion, and the Tribunal considered it appropriate that the matter be re-examined by the adjudicating authority on evidence.

Conclusion: The demand was set aside and the matter was remanded for de novo consideration.

Final Conclusion: The Revenue's appeal was rejected, and the assessee obtained remand on the disputed demand, leaving the substantive tax issue open for fresh adjudication.

Ratio Decidendi: Where service tax and interest are paid before issuance of notice, penalty is not justified in the absence of a sustainable basis for penal action, and a demand founded on disputed factual recoveries may be remanded for fresh decision when evidence is incomplete.

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