Minor stock shortages cannot justify CENVAT credit reversal without evidence of clandestine removal or misuse of inputs.

Minor inventory shortages were held insufficient to justify reversal of CENVAT credit where the assessee maintained a detailed computerised accounting system and the discrepancies were negligible against the overall volume of inputs handled. In the absence of evidence of clandestine removal, diversion, or unauthorised use of inputs, a mere physical stock variation was treated as explainable by normal accounting and human error. Applying earlier reasoning on commercially tolerable shortages in a large manufacturing set-up, the demand for reversal of credit was found unsustainable and the issue was decided in favour of the assessee.

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Issues: Whether reversal of CENVAT credit could be demanded on account of minor shortages in inventory where the assessee maintained an elaborate computerised accounting system and there was no evidence of clandestine removal or unauthorised use of inputs.

Analysis: The shortage and excess figures were found to be minuscule in relation to the total volume of inputs handled. The material on record showed a sophisticated accounting process, and the discrepancy was explained as arising from normal accounting and human errors. In the absence of any evidence of clandestine clearance, diversion of inputs, or improper utilisation of credit, the mere physical stock variation was not sufficient to sustain the demand. The earlier decision dealing with similar shortages in a large-scale manufacturing environment was applied, where such minor discrepancies were treated as commercially tolerable and not indicative of irregular credit availment.

Conclusion: The demand for reversal of credit was not sustainable, and the issue was decided in favour of the assessee.

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