Modvat credit diversion allegations failed where technical evidence and consumption norms showed no proven misuse of inputs.

Demand, confiscation and penalties based on alleged diversion of inputs and irregular Modvat credit were held unsustainable because the Revenue failed to prove actual diversion. The remand direction required consideration of the Chartered Engineer's certificate, which supported the appellant's input consumption pattern with reference to SION norms under the EXIM Policy. On the record, no satisfactory evidence established misuse of modvated inputs, and the adjudicating authority was not justified in refusing to consider the technical certificate. The disputed demand and related penal consequences were therefore set aside in favour of the assessee.

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Issues: Whether the demand of duty, penalty and confiscation on the basis of alleged diversion of inputs and irregular availment of Modvat credit was sustainable.

Analysis: The remand order had specifically required consideration of the Chartered Engineer's certificate and the record showed that no satisfactory evidence had been brought to establish actual diversion of modvated inputs to the service unit. The Chartered Engineer's affidavit supported the input consumption pattern with reference to SION norms under the EXIM Policy and indicated that the appellant's claimed consumption ratios were acceptable on technical grounds. In these circumstances, the Revenue failed to discharge the burden of proving its allegation to the required standard, and the adjudicating authority's refusal to consider the certificate was not justified.

Conclusion: The demand, confiscation and penalties were not sustainable and were set aside in favour of the assessee.

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