Clandestine removal and Cenvat credit: shortage allegations and input-credit denial failed for lack of supporting evidence.

Demand of duty based only on alleged shortage of inputs could not be sustained where no inventory was prepared and no evidence showed clandestine removal outside the factory. The assessee's explanation that the material was lying in kettle pans and under process was accepted, and the demand was set aside. Cenvat credit on refined lead ingots was also held admissible because the invoices, RG-23A records and supporting affidavit showed receipt and use in manufacture, and no evidence justified denial of credit. The impugned order was found unsustainable on both counts, with consequential relief granted to the assessee.

---

---

Issues: (i) Whether the demand of duty on the basis of alleged shortage of inputs was sustainable in the absence of evidence of clandestine removal; and (ii) whether the Cenvat credit taken on refined lead ingots was inadmissible on the ground that the goods were final products and not inputs.

Issue (i): Whether the demand of duty on the basis of alleged shortage of inputs was sustainable in the absence of evidence of clandestine removal.

Analysis: The shortage was relied upon mainly on the statement of the appellant's representative. The shortage was disputed by the appellant, who explained that the material was lying in kettle pans and under process. No inventory was prepared by the Revenue to establish the alleged shortage. There was also no evidence of removal of the goods outside the factory. Mere admission of shortage, without proof of clandestine removal, was insufficient to sustain the demand.

Conclusion: The demand based on alleged shortage of inputs was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the Cenvat credit taken on refined lead ingots was inadmissible on the ground that the goods were final products and not inputs.

Analysis: The credit was availed on the basis of invoices issued by the supplier and was reflected in the RG-23A Part I and II records. The goods were shown as used in the manufacture of the final product, and an affidavit of the Director supported the claim. No evidence was produced to show clandestine removal or any other basis to disallow the credit.

Conclusion: The Cenvat credit was held to be admissible and the disallowance was set aside in favour of the assessee.

Final Conclusion: The impugned order was unsustainable on both counts, and the assessee was granted consequential relief.

Ratio Decidendi: A demand of duty or denial of credit cannot be upheld merely on allegations of shortage or on the basis of documents alone when the Revenue fails to establish clandestine removal or any other legally sustainable ground for disallowance.

---