CENVAT credit on alleged capital goods shortage requires verification of scrap removal and statutory records before recovery.

Recovery of CENVAT credit on an alleged shortage of capital goods could not be sustained without verifying the assessee's explanation that the moulds had been repeatedly used, had become scrap, were reflected in statutory records, and were cleared on payment of duty. Because the record did not show conclusive verification of removal or a factual finding disproving that explanation, a fresh factual determination was required before deciding the credit dispute. The matter was remanded for reconsideration after verification of the assessee's plea and observance of natural justice.

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Issues: Whether the recovery of CENVAT credit on the alleged shortage of capital goods was sustainable without verification of the assessee's explanation that the moulds had been repeatedly used, converted into scrap, accounted for in the statutory records, and removed on payment of duty.

Analysis: The disputed shortage concerned C.I. moulds used as capital goods in the manufacture of MS ingots. The explanation was that the moulds had deteriorated into scrap through repeated use and were reflected in the statutory accounts, with duty stated to have been paid on the scrap when cleared. The explanation could not be rejected summarily, particularly when the record did not show verification of the alleged removal or any conclusive finding displacing the assessee's plea. In such a situation, a specific factual determination was necessary before deciding the credit dispute, and the matter had to be examined afresh in accordance with natural justice.

Conclusion: The matter was remanded to the lower authority for fresh adjudication after verification of the assessee's plea and observance of natural justice.

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