Cenvat credit on duty-paid inputs cannot be denied merely for higher consumption when evidence supports manufacturing need.

Cenvat credit was held admissible on Caustic Soda Flakes, Soda Ash and Titanium Dioxide used in manufacturing paper and paper board because the inputs were received under duty-paid documents, recorded in statutory books, and the higher consumption was plausibly explained by evidence, including a coating plant and poor-quality waste paper requiring extra de-inking and bleaching. Credit could not be denied merely because consumption exceeded the previous year's figures. The Director's penalty also failed because it rested entirely on the same allegation of wrongful credit availment; once the credit disallowance was set aside, the foundation for penalty disappeared.

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Issues: (i) Whether Cenvat credit was admissible on Caustic Soda Flakes, Soda Ash and Titanium Dioxide used in the manufacture of paper and paper board. (ii) Whether the penalty imposed on the Director could survive after the company was held entitled to the credit.

Issue (i): Whether Cenvat credit was admissible on Caustic Soda Flakes, Soda Ash and Titanium Dioxide used in the manufacture of paper and paper board.

Analysis: The credit had been denied only on the basis that the quantities consumed during the relevant period were higher than those consumed in the previous year. The record showed receipt of the inputs under duty-paid documents and their accounting in the statutory records. The explanations given for higher consumption were supported by evidence: the installation of a coating plant justified increased use of Titanium Dioxide, and the import of poor-quality waste paper containing synthetic glue justified greater use of Caustic Soda and Soda Ash for de-inking and bleaching. The denial of credit was therefore not sustainable on the basis adopted by the lower authority.

Conclusion: The company was entitled to Cenvat credit on all the disputed inputs for the period in question, and the denial of credit was set aside.

Issue (ii): Whether the penalty imposed on the Director could survive after the company was held entitled to the credit.

Analysis: The penalty was founded entirely on the allegation of wrong availment and utilization of credit by the company through its Director. Once the substantive disallowance of credit failed, the foundational allegation for penalty no longer remained.

Conclusion: The penalty imposed on the Director was unsustainable and was set aside.

Final Conclusion: The dispute ended in complete relief to the appellants, with the credit demand and the consequential personal penalty both annulled.

Ratio Decidendi: Duty-paid inputs received in the factory and accounted for in the prescribed records cannot be denied credit merely because their consumption exceeds that of a previous period, where the assessee furnishes a plausible and evidence-backed explanation for the higher usage in manufacture.

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