Cenvat credit reversal on unprocessed inputs and admitted stock shortages upheld, with penalty sustained.

Shortages found in a joint stock verification conducted with departmental officers, and admitted by the assessee's authorised representative, were held liable to duty and penalty; a later challenge to the verification was rejected as an afterthought. The Tribunal also held that Cenvat credit had to be reversed on inputs cleared without any proved processing, since no evidence showed job-work or manufacture before removal and the challans were found to support only a paper transaction. On these facts, even where defective inputs were sold as scrap, the credit taken on receipt remained reversible, and the penalty was upheld.

---

---

Issues: (i) Whether duty was correctly paid on shortages detected in joint stock verification; (ii) whether Cenvat credit was required to be reversed on inputs cleared as such or sold as scrap; (iii) whether penalty was imposable.

Issue (i): Whether duty was correctly paid on shortages detected in joint stock verification.

Analysis: The shortages were found in a joint verification conducted by the assessee along with departmental officers and were admitted by the assessee's authorised representative. A later contention that the verification was improper was treated as an afterthought and was rejected.

Conclusion: Duty on the shortages was correctly paid and the assessee was liable to penalty on this count.

Issue (ii): Whether Cenvat credit was required to be reversed on inputs cleared as such or sold as scrap.

Analysis: No evidence was produced to show that any process was carried out on the inputs before their removal. The Tribunal found that the challans were prepared only to create paper records and that the goods were not sent for job work. Even if the defective inputs were sold as scrap, the credit availed at the time of receipt had to be reversed when the inputs were cleared as such.

Conclusion: The Cenvat credit taken on the inputs was required to be reversed.

Issue (iii): Whether penalty was imposable.

Analysis: The Tribunal accepted the Revenue's case that the assessee had attempted to support a paper transaction and that the clearances were not genuine job-work removals. In view of the improper conduct and the incorrect treatment of the goods, the imposition of penalty was upheld.

Conclusion: Penalty was rightly imposed.

Final Conclusion: The appeal failed on all material issues, and the order of the First Appellate Authority was sustained in full.

Ratio Decidendi: Where inputs are cleared without any proved processing, Cenvat credit availed on receipt must be reversed, and shortages admitted in joint verification cannot be disowned later by a bare plea of defective stock-taking.

---