Cenvat credit on input shortages depends on factual tolerance limits, diversion risk, and absence of mala fide conduct.

Cenvat credit cannot be denied merely because input shortages are detected; the enquiry must assess whether the goods were diverted, whether any loss was due to transit loss, evaporation, or weighment on different scales, and whether the variation fell within acceptable tolerance limits. Minor weight differences must be decided on the facts of each case, especially where no mala fide conduct is shown and the claim is not unreasonable or exorbitant. On the facts examined, no mala fide attribution to the assessee was found, so credit was not disallowed.

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Issues: Whether Cenvat credit could be denied on account of shortage in inputs when the shortage was alleged to be bona fide and not attributable to the assessee.

Analysis: The Tribunal applied the principle that shortages in inputs cannot be tested by any inflexible standard for allowing or denying credit. The relevant enquiry is whether the goods were diverted, whether the goods were susceptible to transit loss or evaporation, whether the discrepancy arose from weighment on different scales, and whether the variation was within acceptable tolerance limits. Minor differences in weight, especially where no mala fide conduct is shown and no unreasonable or exorbitant claim is involved, must be assessed on the facts of each case. On the facts, no mala fide reason attributable to the appellant was found.

Conclusion: Cenvat credit could not be denied on the facts, and the appeal was allowed in favour of the assessee.

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