As per the provisions of service tax, any payment of service tax with interest voluntarily before any show cause notice may be deposited under section 73(3) of the Chapter V of Finance Act, 1994 (Service Tax).

Relevant Extracts of provisions of section 73(3) are as under: -

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person ……….., on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:

X X X X  

Therefore, in case an assessee did not deposit service tax within prescribed time limit but despite the same after some time, the following questions may arise:-

-  Whether penalty proceeding for late deposit of service tax be initiated under section 76 of Chapter V of Finance Act, 1994 (Service Tax)

-  Whether penalty proceeding suppressing value of taxable service be initiated under section 78 of Chapter V of Finance Act, 1994 (Service Tax)

- Whether penalty proceeding for late filing of return or incorrect filing of return be initiated under section 77 of Chapter V of Finance Act, 1994 (Service Tax)

To clarify the matter, CBEC has issued a circular Letter F. No. 137/167/2006-CX-4, dated 3-10-2007 - Service Tax.

CBEC has clarified that once the amount of Service Tax with Interest is being deposited before issue of show cause notice, all the proceedings shall be deemed to be concluded.  No further action shall be taken.

Means thereby, no penalty shall be imposed in such circumstances.

Voluntary payment of service tax with interest prevents penalty and halts penalty proceedings if made before notice. Voluntary deposit of service tax with interest under the procedure of section 73(3), coupled with written notification to the Central Excise Officer before any show cause notice, prevents service of a notice and precludes initiation of penalty proceedings for the amount so paid; CBEC guidance states such proceedings shall be deemed concluded and no penalty imposed.