CENVAT credit for short-received inputs requires factual examination of transit loss, weighment differences, and tolerance limits.

CENVAT credit on inputs cannot be denied merely because the quantity physically received is short of the invoice quantity. Under Rule 3 of the CENVAT Credit Rules, 2004, the allowance or denial of credit depends on surrounding factors such as possible diversion in transit, susceptibility to transit loss, differences in weighment scales, permissible tolerance limits, and whether compensation was claimed from the supplier, transporter, or insurer. If those factors are not examined before issuing the notice or passing the order, a mechanical denial is unsustainable. On the recorded facts, the denial of credit was not justified.

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Issues: Whether CENVAT credit could be denied merely because the quantity of inputs received was short of the invoice quantity, without examining the nature of the shortage and the relevant surrounding factors.

Analysis: The dispute concerned availment of CENVAT credit on base oil where the quantity physically received was short compared with the invoice quantity. The governing principle applied was that shortages cannot be assessed by any rigid or inflexible standard under Rule 3 of the CENVAT Credit Rules, 2004. Allowance or denial of credit depends on relevant factors such as whether the goods were diverted in transit, whether the goods were susceptible to transit loss, whether the discrepancy arose from differing weighment scales, whether the difference was within permissible tolerance, and whether any compensation was claimed from the supplier, transporter, or insurer. No such exercise had been undertaken by the lower authorities before issuance of the show cause notice or in the impugned orders.

Conclusion: The denial of credit was not justified on the facts recorded, and the assessee was entitled to succeed.

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