Cenvat credit on minor input shortages remains allowable when discrepancies arise from normal measurement variation and no diversion is shown.

Cenvat credit cannot be denied merely because the quantity of duty-paid inputs physically received is marginally lower than the invoice quantity, where the discrepancy is negligible and explainable by weighing-scale variation, dip reading, or density differences. The record here showed only a small shortfall of 0.08% to 0.38%, with no evidence of diversion, clandestine removal, mala fide conduct, or non-manufacturing use. In such circumstances, full credit of the duty reflected on the supplier's invoice remains allowable, and the corresponding demand for credit reversal, interest, and penalty is unsustainable.

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Issues: Whether Cenvat credit could be denied and recovered on account of a small difference between the invoice quantity and the quantity measured on receipt of inputs, where the discrepancy was attributable to weighing-scale variation or dip reading and there was no evidence of diversion of inputs.

Analysis: The inputs were admittedly received under duty-paid invoices and were subjected to in-house weighment, with only a marginal shortfall of 0.08% to 0.38% recorded. The shortage was of a kind that could arise from differences in calibration of weighing scales or, in the case of liquids, from dip-reading and density variation. The record contained no allegation of mala fide conduct, clandestine removal, or diversion of the inputs for non-manufacturing purposes. In such circumstances, the settled position applied by the Court was that full credit of duty shown on the supplier's invoice cannot be denied merely because the quantity physically received is slightly less, if the shortage is negligible and there is no evidence of illicit diversion.

Conclusion: Cenvat credit could not be denied on the basis of the minor shortage, and the demand of credit, interest, and penalty was unsustainable.

Ratio Decidendi: Where the shortage in receipt of duty-paid inputs is negligible and is attributable to normal weighing or measurement differences, without any proof of diversion or other misconduct, credit of the duty shown in the supplier's invoice is allowable in full.

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