Penalty under Section 76 is not automatic where reasonable cause exists and no wilful breach is shown.

Penalty under Section 76 of the Finance Act, 1994 was not automatic where the record showed prompt reversal of Cenvat credit after an audit objection and no material established deliberate breach, wilful default, or contumacious conduct. On those facts, reasonable cause existed for relief under Section 80, so the penalty was waived. The substantive tax and interest liability, if any, remained confirmed.

---

---

Issues: Whether penalty under Section 76 of the Finance Act, 1994 was sustainable, and whether the appellant was entitled to the benefit of Section 80 of the Finance Act, 1994 on the facts found.

Analysis: The reversal of Cenvat credit was made promptly after the audit objection, and the record did not disclose any deliberate breach of law or wilful default. The reasons for the lapse were not properly brought out by the lower authority, and in the absence of material showing contumacious conduct, penalty could not be treated as automatically leviable. The circumstances indicated reasonable cause warranting relief from penalty.

Conclusion: The appellant was entitled to the benefit of Section 80 of the Finance Act, 1994, and the penalty was waived. The tax and interest liability, if any, remained confirmed.

Final Conclusion: The appeal succeeded only to the extent of setting aside the penalty, while the substantive tax and interest demand was left intact.

Ratio Decidendi: Penalty under Section 76 of the Finance Act, 1994 is not automatic and cannot be sustained in the absence of wilful breach or when reasonable cause is established for invoking Section 80 of the Finance Act, 1994.

---