Pre-notice payment of service tax with intimation bars notice and protects against penalty under section 78.

Service tax and interest paid before issuance of the show cause notice, with due intimation to the department, attracted the protection of section 73(3) of the Finance Act, 1994. On that basis, no notice was required for the amount so paid, and Explanation 2 to the proviso supported immunity from penalty in respect of such payment and interest thereon. The Tribunal accepted that this statutory protection applied on the facts and held that the penalty under section 78 could not be sustained.

---

---

Issues: Whether the appellant was entitled to the benefit of section 80 of the Finance Act, 1994 so as to avoid penalty under section 78, in view of prior payment of service tax and the statutory protection available under section 73(3).

Analysis: The appellant had paid the service tax before issuance of the show cause notice and had informed the department. The statutory scheme under section 73(3) provides that, on such payment and intimation, no notice is to be served for the amount so paid, and Explanation 2 to the proviso declares that no penalty shall be imposed in respect of such payment and interest thereon. The Tribunal accepted the view that this protection was available on the facts of the case and that the lower authority had erred in sustaining the penalty under section 78.

Conclusion: The appellant was entitled to the statutory benefit, and the penalty under section 78 was unsustainable.

Ratio Decidendi: Where service tax and interest are paid before issuance of notice and the payment is duly intimated, section 73(3) bars notice for the amount so paid and the statutory protection extends against penalty under section 78.

---