Cenvat credit on insignificant input shortage allowed where loss was within tolerance and no diversion was shown.

Cenvat credit on naphtha input could not be denied where the alleged shortage was insignificant, at 0.046% of total stock, and remained undisputed by the Revenue. The Tribunal treated the shortage as an inevitable storage or handling loss, noted that the volatile nature of the material was not controverted, and found no evidence of diversion or unauthorized removal. As the loss fell within the tolerance contemplated by the Board circular and the input was still intended for use in manufacture of final products, the credit claim was allowed to stand and the Revenue challenge failed.

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Issues: Whether Cenvat credit could be denied on shortage of naphtha input where the shortage was insignificant and within the permissible tolerance limit.

Analysis: The shortage of naphtha was found to be only 0.046% of the total stock and was not disputed by the Revenue. The Tribunal noted that the volatile nature of the material was not controverted and that no material was brought to show diversion or unauthorized removal. The shortage was treated as an inevitable storage or handling loss, falling within the tolerance contemplated by the Board circular, and the input was regarded as intended for use in the manufacture of final products.

Conclusion: Cenvat credit could not be denied on the alleged shortage, and the Revenue's challenge to the order allowing credit failed.

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