Pre-notice payment of service tax and interest bars penalties absent suppression, and later penalty provisions cannot apply retrospectively.

Where service tax and interest were paid before the show-cause notice, the penalty provisions under Sections 76, 77 and 78 of the Finance Act, 1994 were not attracted because Section 73(3) barred notice for the amount already discharged and suppression of material facts with intent to evade was not established. Section 73(4A), introduced from 08.04.2011, could not be applied to a prior period, and in any event it was inapplicable on the recorded facts for absence of suppression. The order declining penalty was therefore upheld and the Revenue challenge failed.

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Issues: (i) Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were leviable when the service tax and interest had been paid before issuance of the show-cause notice; (ii) Whether Section 73(4A) of the Finance Act, 1994 could be applied to a period prior to its commencement on 08.04.2011.

Issue (i): Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were leviable when the service tax and interest had been paid before issuance of the show-cause notice.

Analysis: The liability had been discharged after the discrepancy was pointed out and before the show-cause notice, along with interest. The statutory scheme under Section 73(3) bars issuance of notice for the amount so paid, and the Department had to establish suppression of material facts with intent to evade payment in order to sustain penal action. On the facts recorded, such suppression was not proved.

Conclusion: The penalties were not leviable and the refusal to impose penalties was correct.

Issue (ii): Whether Section 73(4A) of the Finance Act, 1994 could be applied to a period prior to its commencement on 08.04.2011.

Analysis: Section 73(4A) was introduced with effect from 08.04.2011 and the dispute period was prior to that date. The provision was not shown to have retrospective operation, and in any event the absence of suppression rendered it inapplicable on the recorded facts.

Conclusion: Section 73(4A) was not applicable to the dispute period.

Final Conclusion: The order declining penalty was upheld, and the Revenue's challenge failed in entirety.

Ratio Decidendi: Where service tax and interest are paid before show-cause notice and suppression with intent to evade is not established, penal provisions under the Finance Act, 1994 cannot be invoked, and a later-enacted penalty provision cannot be applied retrospectively to an earlier period.

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