Modvat credit cannot be denied for higher process loss without proof of clandestine removal or suppression.

Modvat credit on duty-paid inputs cannot be denied merely because manufacturing loss exceeded a notional norm. Where the input fibre was admittedly used in manufacture and the excess loss was explained by poor material quality, the absence of evidence of over-consumption, suppression, clandestine removal, or other misuse meant the duty demand could not be sustained. CESTAT upheld the order setting aside the demand and penalty, and the Revenue's appeal failed.

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Issues: Whether Modvat credit and the resulting duty demand could be denied merely because the process loss in manufacture exceeded the expected norm, in the absence of evidence of clandestine removal or other malpractice.

Analysis: The input fibre was admittedly used in manufacture, and the excess loss was explained by the poor quality of the material received. No evidence was produced to show over-consumption, suppression, or clandestine removal. In such circumstances, the mere fact that the loss was higher than the notional norm could not by itself justify denial of credit or sustain the duty demand.

Conclusion: The issue was decided in favour of the assessee. The order setting aside the duty demand and penalty was upheld, and the Revenue's appeal failed.

Final Conclusion: Credit on duty-paid inputs cannot be disallowed solely on the basis of higher process loss when the record does not establish clandestine removal or comparable wrongdoing.

Ratio Decidendi: Excess process loss, by itself, is not a valid ground to deny credit on inputs or confirm duty demand unless the department proves clandestine removal, suppression, or other actionable misuse.

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