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Issues: Whether Modvat/Cenvat credit on imported raw materials could be denied merely because the quantity shown in the storage records reflected a marginal shortage, in the absence of any allegation or proof of diversion of the goods.
Analysis: The disputed shortage was negligible and the inputs were liquid goods received through pipeline and accounted for by dip readings in storage tanks. In the absence of any finding that the imported raw materials were diverted or put to any use other than as inputs in manufacture, credit could not be curtailed merely on the basis of a difference between the imported quantity and the quantity reflected in storage records. The principle applied was that where duty-paid inputs are received and used in manufacture, and there is no evidence of diversion or incorrect invoicing, credit attributable to the duty paid on those inputs cannot be denied.
Conclusion: The denial of credit was unsustainable and the issue was decided in favour of the assessee.
Final Conclusion: The revenue appeal failed, and the credit could not be denied on account of the alleged shortage.
Ratio Decidendi: Modvat/Cenvat credit on duty-paid inputs cannot be denied for a marginal stock shortage where there is no evidence of diversion and the inputs are otherwise shown to have been received for use in manufacture.
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