Cenvat credit cannot be denied for minor inventory shortages without proof of diversion or clandestine removal.

Cenvat credit could not be denied merely because inputs were short by a minor margin in stock verification, where there was no allegation or proof of diversion or clandestine removal. The discrepancy was only about 0.05% of inputs received, and the presence of excess stock in some instances supported the explanation that the variation was an accounting difference rather than evidence of non-use in manufacture. Applying the earlier decision affirmed by the Supreme Court, a marginal shortage within acceptable tolerance does not justify denial of credit. The assessee succeeded and the order allowing credit was sustained.

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Issues: Whether Cenvat credit was admissible where inputs were found short only to a minor extent in stock verification and there was no allegation of diversion or clandestine removal.

Analysis: The discrepancy in the stock of inputs was only about 0.05% of the total inputs received. The record also showed that in some instances there was excess stock, supporting the explanation that the variation was an accounting difference rather than evidence of diversion. Following the earlier decision affirmed by the Supreme Court, a minor shortage within permissible limits, without proof that the inputs were not used in manufacture or were diverted elsewhere, does not justify denial of credit.

Conclusion: The denial of Cenvat credit was not justified and the issue is decided in favour of the assessee.

Final Conclusion: The revenue challenge failed, and the order allowing credit was sustained.

Ratio Decidendi: A minor inventory shortage, by itself and without evidence of diversion or clandestine removal, is insufficient to deny Cenvat credit where the discrepancy is within acceptable accounting tolerance.

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