CENVAT credit on stock shortage alone cannot be denied absent evidence of clandestine removal or misuse of inputs.

CENVAT credit could not be denied merely because inputs were found short during physical stock verification where there was no evidence of clandestine removal or diversion. The shortfall was treated as a minor fraction of total consumption and the explanation of process loss and inventory variation was not effectively rebutted. Mere reliance on shortage alone, without proof of unlawful removal or misuse of credit, was held insufficient to sustain recovery. The cited authorities did not alter that factual conclusion, and the Revenue's challenge failed.

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Issues: Whether CENVAT credit could be denied on inputs found short during physical stock verification in the absence of evidence of clandestine removal, and whether the shortfall, being within normal tolerance limits, justified recovery.

Analysis: The shortage was treated as a minor fraction of the total consumption in the manufacturing process. The appellate finding was that there was no material showing clandestine removal or diversion of inputs, and the explanation of process loss and inventory variation was not effectively controverted. Mere reliance on the fact of short-quantity inputs, without evidence of unlawful removal or misuse of credit, was held insufficient to sustain the demand. The cited authorities did not displace this conclusion on the facts found.

Conclusion: Denial of CENVAT credit was not justified, and the Revenue appeal failed.

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