2026 (3) TMI 409 - HC - Central Excise

Protection under Section 73(3) prevents notice for pre notice tax paid unless Section 73(4) circumstances are specifically pleaded and proved.

Payment of tax before issuance of a show cause notice attracts statutory protection under Section 73(3) of the Finance Act, 1994, barring notice in ... Limitation period for recovery - wrongly availed CENVAT credit on input supplies - pre-notice payment protection - denial of statutory protection - Entitlement to protection​​​​​​​ under sub-section (3) of Section 73 for tax paid prior to service of show cause notice - Exception under sub-section (4) of Section 73 requires specific pleading and proof - Extension of limitation and denial of protection under sub-section (4). Protection under sub-section (3) of Section 73 - HELD THAT: - The court held that sub-section (3) of Section 73 bars service of a notice in respect of amounts voluntarily paid prior to service of notice, and that sub-section (4) operates as an exception which both extends limitation and denies the protection of sub-section (3) only where circumstances of fraud, collusion, wilful misstatement, suppression of facts or contravention of Chapter V are specifically pleaded and established. Invocation of sub-section (4) requires strict compliance with statutory requirements; the existence of any of the enumerated circumstances must be clearly demonstrated in the show cause notice and on the record. In the present case the show cause notice did not contain specific allegations referable to clauses (a)-(e) of sub-section (4), and the Revenue failed to establish those circumstances. Consequently the benefit of sub-section (3) could not be denied and the Tribunal rightly followed the view that protection applied where tax and interest were paid before issuance of notice. [Paras 8] Benefit under sub-section (3) of Section 73 applies as tax and interest were paid before issuance of notice; sub-section (4) could not be invoked in the absence of specific pleaded and proved allegations. Final Conclusion: The appeal is dismissed; no substantial question of law arises as the Tribunal correctly upheld the protection under sub-section (3) of Section 73 in the absence of specific allegations or proof to invoke sub-section (4). Issues: (i) Whether the respondent is entitled to protection under Section 73(3) of the Finance Act, 1994 for tax paid prior to service of show cause notice and whether the Revenue could deny that protection by invoking the exceptions in Section 73(4) without specific pleading and proof.Analysis: Section 73(3) provides that a person who pays the tax before service of notice and furnishes the prescribed intimation is protected from issuance of a notice in respect of the amount so paid. Section 73(4) lists circumstances (fraud, collusion, wilful misstatement, suppression of facts, or contravention of Chapter V with intent to evade) which both extend limitation and exclude the protection under Section 73(3). Invocation of Section 73(4) thereby operates as an exception to the protection under Section 73(3) and requires specific pleading and clear demonstration of the existence of facts falling within the enumerated clauses. Where payment is made prior to service of notice, the Revenue must specifically allege and substantiate the circumstances under Section 73(4) in the show cause notice or record to justify denial of the statutory protection; mere detection or belated examination does not, without more, establish those circumstances.Conclusion: The protection under Section 73(3) of the Finance Act, 1994 applies as the service tax was paid prior to issuance of the show cause notice and the Revenue failed to specifically plead or demonstrate any circumstance falling under Section 73(4); the Tribunal's reliance on the Andhra Pradesh decision and its setting aside of the demand on that basis is correct and does not warrant interference.Ratio Decidendi: Where tax is paid before service of notice under Section 73(3) of the Finance Act, 1994, the statutory protection cannot be denied unless the Revenue specifically pleads and proves circumstances enumerated in Section 73(4); invocation of Section 73(4) requires strict compliance with pleading and proof standards and both extends limitation and excludes Section 73(3) protection.