Pre-notice payment of service tax and interest bars notice under section 73(3) absent fraud or suppression.

Where service tax and interest are paid before issuance of show cause notice, section 73(3) of the Finance Act, 1994 protects the assessee if the department does not establish fraud, collusion, wilful misstatement, or suppression of facts. On these facts, the notices were issued after audit objections and no positive material showed the requisite mens rea. The pre-notice payment mechanism therefore applied, the notices were unsustainable for the amount so paid, and the consequential penalty-related demands could not stand.

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Issues: Whether service tax and interest paid before issuance of show cause notice attracted the protection under section 73(3) of the Finance Act, 1994, so as to render the notices unsustainable and the consequential penalty demands inapplicable.

Analysis: The payment of tax and interest had been made before issuance of the show cause notices. The record did not disclose any positive material establishing fraud, collusion, wilful misstatement, or suppression of facts on the part of the assessees. The notices were issued on the basis of audit objections after the department detected the alleged irregularity. On the facts found, the pre-notice payment mechanism under section 73(3) was attracted, and the foundation for invoking penal consequences and sustaining the notices was absent.

Conclusion: The protection under section 73(3) applied. The show cause notices and the consequential penalty-related findings were not sustainable, and the assessees succeeded.

Ratio Decidendi: Where tax and interest are paid before issuance of notice and the department fails to establish fraud, collusion, wilful misstatement, or suppression of facts, section 73(3) of the Finance Act, 1994 bars notice for the amount so paid.

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