Cenvat credit demand fails where stock shortage calculations are unreliable and clandestine removal is not independently proved.

CESTAT held that a duty demand and equal penalty based on alleged input shortage and wrongful Cenvat credit could not stand where the Revenue's stock calculations were defective and inconsistent. The record showed errors in stock computation, failure to account for supplies, work-in-progress, job-work material and off-cuts, and no independent evidence of clandestine removal, bogus credit, or clandestine manufacture and clearance. Because the calculation was casual and unreliable, the demand and penalty were set aside in favour of the assessee.

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Issues: Whether the demand of duty and equal penalty based on alleged shortage of inputs and alleged wrongful availment of Cenvat credit was sustainable.

Analysis: The demand was founded on an alleged shortage of raw material as on the date of stock verification. The material on record showed serious defects in the Revenue's working, including errors in the stock computations, incomplete consideration of supplies to customers, omission to account for work-in-progress, job-work material and off-cuts, and inconsistent approaches between the show cause notice and the adjudication order. No independent evidence was produced to establish clandestine removal of inputs, bogus credit, or clandestine manufacture and clearance of final products. The calculation adopted by the Revenue was found to be casual and unreliable, and the case was made without adequate diligence.

Conclusion: The demand and penalty were not sustainable and were set aside in favour of the assessee.

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