Modvat credit cannot be denied on a mere burning-loss discrepancy without evidence of clandestine removal or unlawful diversion.

Modvat credit could not be denied merely because the job worker's records showed a lower burning loss than the loss claimed on return of the goods, since no evidence established that the disclosed loss was false or that inputs were clandestinely removed. A higher burning-loss claim, by itself, did not justify an inference of unlawful diversion of inputs, and the Board's circular also recognised that credit cannot be denied only because part of the inputs ended up in waste or scrap. In the absence of further material showing treatment of the inputs contrary to law, confirmation of duty was not sustainable and the denial of credit was set aside.

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Issues: Whether Modvat credit could be denied merely because the job worker's records reflected a lower burning loss than the loss shown in the goods received back, and whether such difference by itself established clandestine removal of inputs.

Analysis: The department produced no evidence to show that the burning loss at the job worker's end was in fact lower than the loss disclosed. A higher claim of burning loss, by itself, did not lead to the inevitable conclusion that inputs had been removed clandestinely. The Board's circular also stated that credit on inputs could not be denied merely because part of the inputs was contained in waste and scrap. In the absence of any further material showing that the inputs were dealt with otherwise than in the manner permitted by law, the confirmation of duty could not be sustained.

Conclusion: The denial of Modvat credit was not justified and the impugned order was set aside.

Ratio Decidendi: Mere discrepancy in burning loss, without supporting evidence of clandestine removal or other unlawful diversion of inputs, is insufficient to deny Modvat credit.

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