Marginal stock shortage in input records cannot sustain duty demand or penalty without proof of clandestine removal or wrongful credit.

Marginal stock shortage in input records does not justify duty demand or penalty where there is no proof of mala fide, clandestine removal, or wrongful availment of Modvat credit. A shortfall of about 0.6% was treated as a reasonable variation, especially where records also showed excess of similar inputs and the discrepancy was explained by clerical errors, substitution of comparable items, and replacement issues. In the absence of evidence that goods were diverted or that credit was taken without receipt of inputs, the alleged shortage could not sustain penalty-linked liability. The duty demand was therefore held unsustainable.

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Issues: Whether demand of duty and penalty on alleged shortage of inputs used for availing Modvat credit was sustainable when the discrepancy was marginal and no mala fide, clandestine removal, or wrongful availment of credit was shown.

Analysis: The shortage was only about 0.6% in the context of large-scale use of inputs. The records also showed excess of certain similar inputs, and the discrepancy was explained as arising from clerical errors, substitution of similar items, and unrecorded replacement issues. In the absence of evidence of diversion of goods, clandestine removal, or credit taken without receipt of inputs, such minor variation in stock could not justify duty demand. The Tribunal treated the shortage as reasonable and found no basis for penalty-linked liability.

Conclusion: The demand of duty could not be sustained and the assessee succeeded.

Ratio Decidendi: A marginal stock shortage in input records, without proof of mala fide, clandestine removal, or wrongful availment of credit, is a reasonable variation and does not justify demand of duty or penalty.

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