CENVAT credit on abnormal losses and impossible transport records: suspicion alone fails, but proof of impossible carriage defeats credit.

CENVAT credit could not be reversed merely because processing losses were alleged to exceed industry norms; comparative loss percentages and benchmark-based calculations, without proof of non-receipt of inputs or clandestine removal, were insufficient to sustain the demand. However, where invoices showed transport of inputs in cars and autos incapable of carrying the stated quantity, the department's evidence shifted the burden to the assessee to prove actual receipt, which it failed to do. On that basis, credit linked to impossible transport particulars was inadmissible and the corresponding demand and penalty were sustained, while the demand based only on abnormal loss calculations was set aside.

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Issues: (i) Whether reversal of CENVAT credit could be demanded merely because the assessee's processing losses were allegedly higher than industry norms. (ii) Whether CENVAT credit was admissible on invoices showing receipt of goods in vehicles found to be incapable of transporting the alleged quantity of inputs.

Issue (i): Whether reversal of CENVAT credit could be demanded merely because the assessee's processing losses were allegedly higher than industry norms.

Analysis: The demand was founded on comparative loss percentages and a mathematical computation treating the differential as clandestinely removed inputs. The legal framework under the Central Excise Act and the CENVAT Credit Rules does not permit reversal of credit solely because the reported losses appear unusually high. Such figures may justify enquiry, but they do not by themselves establish non-receipt of inputs, clandestine removal of inputs as such, or clandestine clearance of finished goods. A demand based only on presumption and benchmarked calculations, without establishing the actual nature of the alleged misconduct, is unsustainable.

Conclusion: The demand founded only on abnormal loss calculations was not sustainable and was set aside, in favour of the assessee.

Issue (ii): Whether CENVAT credit was admissible on invoices showing receipt of goods in vehicles found to be incapable of transporting the alleged quantity of inputs.

Analysis: The department showed that the vehicles mentioned in the invoices were cars and autos, which were incapable of carrying inputs weighing several metric tonnes. Once that evidentiary foundation was laid, the burden shifted to the assessee to explain and prove actual receipt of goods in those vehicles. Applying the principle that the party asserting an evident impossibility as a fact must prove it, the assessee failed to discharge that burden. The invoices therefore did not establish admissible receipt of inputs for the purpose of availing CENVAT credit.

Conclusion: The credit relating to the invoices showing transportation in cars and autos was inadmissible and the corresponding demand and related penalty were upheld, against the assessee.

Final Conclusion: The appeal succeeded only in part: the demand founded on alleged abnormal process loss was annulled, while the demand based on bogus or impossible transport particulars, with corresponding reduction of penalty, was sustained.

Ratio Decidendi: CENVAT credit cannot be reversed on mere suspicion or on a mathematical comparison of losses with industry norms; however, where the department establishes that the alleged transport mode was incapable of carrying the inputs, the burden shifts to the assessee to prove actual receipt of goods.

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