Modvat/Cenvat credit cannot be denied for negligible input write-offs when materials remain unusable separately in manufacture.

Modvat/Cenvat credit should not be denied merely because a negligible quantity of inputs is written off in the balance sheet as shortage, where the goods were received in the factory and were not separately usable in manufacture. The Tribunal noted that the disputed inputs were less than 0.7% of total procurement and accepted the explanation that they remained in an inseparably mixed condition rather than being truly missing. On that basis, and following prior precedent, the write-off entry alone was insufficient to justify credit denial, so the credit was allowed.

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Issues: Whether Modvat/Cenvat credit could be denied on inputs written off in the balance sheet as shortage, where the quantity involved was negligible in relation to total inputs received and the inputs were found to be incapable of separate use in manufacture.

Analysis: The disputed inputs represented less than 0.7% of the total quantity procured in the relevant financial years. The finding of shortage was based on write-off entries in the balance sheet, and the explanation accepted was that the inputs were not truly missing but were present in an inseparably mixed condition and therefore could not be segregated for use. The Tribunal followed its earlier decisions and the cited precedent to hold that when the quantity written off is negligible and the inputs are effectively unavailable for separate use in the manufacturing process, credit cannot be denied merely because the balance sheet reflects a write-off.

Conclusion: Denial of Modvat/Cenvat credit was not justified, and the assessees were entitled to the credit.

Final Conclusion: The impugned orders were set aside and the appeals were allowed.

Ratio Decidendi: Credit on inputs cannot be denied merely because a negligible quantity is written off in the balance sheet, if the materials were received in the factory and were not separately usable in manufacture.

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