2026 (2) TMI 1280 - AT - Service Tax

Pre-notice payment protection under Section 73(3) prevents penalty under Section 78 when tax and interest paid before notice.

Pre-notice payment under Section 73(3) of the Finance Act, 1994 was held to preclude imposition of penalty under Section 78 where service tax and interest ... Benefit under Section 73(3) of the Finance Act, 1994 - no penalty for payment under Section 73(3) - penalty under Section 78 - invocation of extended period for recovery of service tax - payment of service tax on basis of own ascertainment / on audit pointing out - HELD THAT:- We find that in the instant case the issues were raised on the conduct of audit of the records of the appellant. The appellants have promptly paid the amounts of service tax that were brought to his notice by the audit team. Therefore, we find that the provisions of Section 73 (3) of the Finance Act, 1994 are available to the appellants. In fact, Revenue should not have issued Show Cause Notice to the appellants on these issues. We find that though extended period has been invoked as a routine, no substantial evidence has been placed on record to justify the invocation of extended period. Hence, we find that penalty under Section 78 cannot be imposed. Similarly, looking into the conduct of the appellants other penalties are also not imposable in the facts of the case. Therefore, we modify the impugned order setting aside all the penalties imposed. Appeal is disposed in the above terms. Issues: Whether penalty under Section 78 of the Finance Act, 1994 can be imposed where the service tax along with interest was paid before issuance of show cause notice and whether the appellant is entitled to benefit under Section 73(3) of the Finance Act, 1994 in respect of amounts paid on audit.Analysis: The issues arose on audit and the amounts of service tax identified by the audit team were paid by the appellant along with interest prior to issuance of show cause notices. Section 73(3) permits payment of service tax on the basis of ascertainment before service of notice and contains an explanation declaring that no penalty shall be imposed in respect of such payment. The record does not disclose substantive evidence of suppression to justify invocation of the extended period or imposition of penalties. In these circumstances the penal provisions cannot be applied where the statutory pre-notice payment route under Section 73(3) is available and acted upon by the assessee.Conclusion: Penalty under Section 78 and other penalties imposed are set aside; the appellants are entitled to the benefit of Section 73(3) of the Finance Act, 1994 and penalties cannot be imposed where tax with interest was paid before service of notice.