Marginal stock discrepancies cannot by themselves justify denial of Cenvat credit absent evidence of clandestine removal.

Marginal stock variations detected during annual stock verification, especially where some items also showed excess and the discrepancies could arise from weighing or dip-reading errors, do not by themselves establish actual shortage of inputs. In the absence of evidence of clandestine removal, such small and random discrepancies are insufficient to deny Cenvat credit or require reversal. On that basis, the demand for credit, interest, and penalty founded solely on the alleged stock shortage was held unsustainable.

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Issues: Whether Cenvat credit could be denied and reversed on the basis of alleged shortage of inputs noticed during stock verification.

Analysis: The shortage was detected in annual stock taking conducted by the assessee, and the discrepancy was small in percentage terms. The record also showed excess in respect of some other items, indicating that the variations were random and could arise from mistakes in weighing, dip-reading, or similar accounting differences. The Court accepted that such discrepancies did not establish real shortage of inputs and relied on the view that, in the absence of evidence of clandestine removal, a marginal stock variation by itself is not sufficient to deny credit.

Conclusion: The alleged shortage was held to be not and Cenvat credit could not be denied on that basis, in favour of the assessee.

Final Conclusion: The demand of credit, interest, and penalty based on the stock shortage was unsustainable, and the appeal succeeded.

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