CENVAT credit cannot be denied on a tax audit discrepancy alone without corroborative evidence of short receipt or diversion.

CENVAT credit on duty-paid inputs cannot be denied merely because Form 3-CD reflected a short-quantity discrepancy. The revenue's case rested only on the tax audit report, while the record showed admissible process loss in manufacture, no independent evidence of short receipt of raw material, and use of the invoiced inputs in production. The appellate findings were not displaced, and the Tribunal noted that natural loss in blow moulding was not excessive and there was no proof of diversion, false invoices, or excess credit. A discrepancy between invoice quantity and audit disclosure, without corroboration, was insufficient to refuse credit.

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Issues: Whether CENVAT credit could be denied merely on the basis of a short-quantity entry in Form 3-CD when there was no corroborative evidence of short receipt of inputs and the invoices showed duty-paid receipt of the goods.

Analysis: The claim of the revenue rested only on the tax audit report. The adjudicating authority had recorded that process loss in manufacture was admissible, that the department had produced no independent evidence to establish short receipt of raw material, and that the inputs covered by the invoices had been used in manufacture. The appellate authority did not meet those findings and proceeded mainly on the basis of the audit report. The Tribunal found that some process loss in blow moulding was natural, that the loss claimed was not excessive, and that there was no evidence of diversion or excess credit. In the absence of proof that the invoices were false or that the inputs were diverted, a discrepancy between the invoice quantity and the audit report could not by itself justify denial of credit.

Conclusion: The denial of CENVAT credit was not justified, and the assessee was entitled to the credit claimed.

Ratio Decidendi: CENVAT credit on duty-paid inputs cannot be disallowed solely on the basis of a tax audit discrepancy unless the department produces corroborative evidence of short receipt, false invoicing, or diversion of inputs.

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