Under Section 73(3) of the Finance Act, 1994, if service tax and interest are paid and intimated before a show cause notice is issued, no penalty should be imposed, as the statutory provision provides immunity from notice and penal consequences.

This Appeal arises against the order of Commissioner (Appeals-II), Chennai whereby the Commissioner (Appeals) has inter alia upheld the imposition of penalty under Section 78 of the Act. From a perusal of the Grounds of Appeal and as contended by the learned Advocate, I find that the scope of this Appeal is limited to the imposition of penalty under Section 78 alone, Appellant has chosen not to challenge the Appeal on merits.

2. Shri G. Arunmozhi, ld. Advocate appeared for the Appellant and Smt. G. Krupa, ld. Departmental Representative defended the impugned order.

3. It is the case of the Appellant that when the Show Cause Notice was issued on 27.08.2013, they had already made payments of service tax under Reverse Charge Mechanism in 2010 itself when they obtained registration. In this regard, learned Advocate seriously contended that by virtue of Explanation 2 to proviso to Section 73 (3) read with Section 80 of the Finance Act, 1994, the Original Authority should not have issued the SCN itself. In this regard, he has invited my attention to a judgement of Hon’ble Karnataka High Court in the case of Commissioner Vs C. Ahead Info Technologies India P. Ltd [2012 (26) S.T.R. J25 (Kar.)]. He would thus pray for setting aside the imposition of penalty under Section 78 and allow the Appeal.

4. Per contra, Smt. G. Krupa, learned Departmental Representative relied on findings of the lower authorities. She would also rely on a judgement of Hon’ble Karnataka High Court in the case of Madhav Kamath Brothers And Co. Vs CCE Hubli [2015-TIOL-154-HC-KAR-ST] wherein, the Hon’ble High Court has held at para 6 as under:

“6. Merely because the service tax in question is paid prior to the issuance of show cause notice, the assessee cannot be exonerated from payment of penalty. As has been held by the Apex Court in the case of Union of India v. Rajasthan Spinning and Weaving Mills reported in (2009) 13 Supreme Court Cases 448, any payment of the duty amount in question, whether before or after the show-cause notice has been issued, could not alter the penal liability under Section 11-AC of the Act. Section 11-AC of the Act appears to be pari materia with Section 78 of the Finance Act, 1994.

In view of the same, no interference is called for. The appeal fails and the same stands dismissed.’’

5. Heard both sides and perused the documents placed on record and also the judgements relied upon by the parties. I find that the only issue to be decided by me is, ‘whether the Appellant deserves the benefit of Section 80 of the Finance Act, 1994 ?’.

6. Section 73 (3) of the Finance Act, 1994 reads as under:

“SECTION 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. —

…. … ……

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, 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 :

Provided that the Central Excise Officer may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this secti