CENVAT credit on substantial input shortages was disallowed where suppression and unexplained stock discrepancies justified extended limitation and penalty.

CENVAT credit was held inadmissible on inputs found short during stock verification where the shortages were substantial, recurrent, and unsupported by credible evidence of evaporation, heating loss, or measurement variance. The assessee's failure to reverse credit or disclose the shortages contemporaneously, together with internal accounting of the missing inputs as consumption, supported a finding that the inputs were not used in manufacture and that suppression of facts justified invocation of the extended period. The broader principles on credit for shortages were distinguished because the loss was not a minor or ordinary tolerance-level variation. The demand, interest, and penalty were sustained, and the Tribunal's order was affirmed.

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Issues: Whether CENVAT credit was admissible on shortages of inputs found on stock verification, and whether the demand, interest and penalties were sustainable on the footing of suppression of facts and evasion.

Analysis: The inputs were found short in monthly stock verification over several periods, while the assessee itself adjusted the shortages in internal records as consumption without reversing credit or reflecting the shortages in statutory records. The claimed explanation of evaporation, heating loss and differences in measurement methodology was not substantiated, especially when the shortages were substantial, recurrent only in particular months, and not within the range of minor tolerable variation. The absence of contemporaneous disclosure to the department, coupled with the manner in which the shortages were accounted for, supported the finding that the inputs were not used in the manufacture of final products and that the credit had been retained by suppression of facts. The larger bench principles on allowing credit for shortages were distinguished on facts because the present case did not involve merely negligible or ordinary transit loss within tolerance limits.

Conclusion: CENVAT credit on the impugned shortages was not admissible, the extended period was invokable, and the demand, interest and penalty were rightly sustained.

Final Conclusion: The appeals failed, and the Tribunal's order disallowing credit and sustaining the consequential fiscal liability stood affirmed.

Ratio Decidendi: CENVAT credit is not allowable on inputs shown as short after receipt when the shortages are substantial, unexplained, and not shown to be within permissible tolerance or ordinary loss, and suppression through non-reversal of credit justifies invocation of the extended period and penalty.

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