Pre-show-cause tax payment and intent to evade must be examined before penalties under service tax law are sustained.

Where service tax and interest were paid before issuance of a show-cause notice, the adjudicating authority was required to consider the effect of section 73(3) of the Finance Act, 1994 and to record a finding on mala fide intention before sustaining penalties under sections 76 and 77. The impugned order failed to examine the assessee's plea of voluntary payment and did not deal with the cited authorities on absence of intent to evade. The penalty order was therefore not finally sustained and the matter was remanded for fresh decision in light of the applicable legal principles.

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Issues: Whether the penalties imposed under sections 76 and 77 of the Finance Act, 1994 could be sustained without considering the assessee's plea of voluntary payment of service tax with interest and the applicability of section 73(3) of the Finance Act, 1994.

Analysis: The appeal was confined to the penalties. The record showed that the service tax had been paid along with interest before any departmental demand, and the appellant relied on decisions dealing with absence of mala fide intention. The impugned order did not examine those authorities or record a finding on whether the appellant acted with intent to evade. The matter also required consideration of section 73(3) of the Finance Act, 1994, which gives finality to proceedings where tax is paid before issuance of show-cause notice.

Conclusion: The penalties were not finally upheld; the impugned order was set aside and the matter was remanded for fresh decision.

Final Conclusion: The dispute on penalties was sent back for reconsideration in light of the applicable legal principles, including the effect of pre-show-cause notice payment of tax and the need to examine mala fide intention.

Ratio Decidendi: Where tax and interest are paid before issuance of a show-cause notice, the adjudicating authority must examine the effect of section 73(3) of the Finance Act, 1994 and record a finding on mala fide intention before sustaining penalties.

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