Prior payment defence in service tax disputes requires verification before demand and penalty can be sustained.

A material factual defence that service tax on the same commission had already been paid by the main agent could not be ignored where the assessee claimed to have acted only as a sub-agent. Because no finding had been recorded on that assertion, the factual position required verification before demand and penalty could be sustained. The matter was therefore remanded for fresh adjudication after examination of prior tax payment and after granting the assessee a reasonable opportunity of personal hearing.

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Issues: Whether the service tax demand and penalty on the sub-agent were sustainable when it was claimed that the tax on the same commission had already been paid by the main agent, requiring verification of that factual assertion.

Analysis: The assessee asserted that it acted only as a sub-agent and that the service tax attributable to the commission had already been discharged by the main agent. This contention had been raised before the adjudicating authority, but no finding had been recorded on it. The factual question whether the tax had already been paid therefore required verification, and the matter could not be finally decided without examining that aspect.

Conclusion: The demand and equal penalty were set aside and the matter was remanded to the adjudicating authority for fresh decision after granting reasonable opportunity of personal hearing to the assessee.

Final Conclusion: The dispute was sent back for reconsideration on the verified factual position regarding prior tax payment, with consequential relief to the assessee at this stage.

Ratio Decidendi: Where a material factual defence that service tax has already been paid by another person is raised but not examined, the adjudicating authority must verify that fact before confirming demand and penalty.

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