Cenvat credit reversal not warranted for mere stock shortage without proof of clandestine removal or wrong credit

Mere stock shortage noticed during an assessee's own physical verification does not, by itself, require reversal of Cenvat credit where there is no evidence of clandestine removal, diversion, or improper use of inputs. The Tribunal treated the shortage as a theoretical reconciliation difference, noted the assessee's computer-based inventory system and disclosed reconciliation gaps, and followed its earlier view in the same matter. In the absence of proof that goods were wrongly removed or that credit was wrongly or improperly taken, recovery under Rule 57-I of the Central Excise Rules, 1944 was not justified, and the demand for reversal of credit was held unsustainable.

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Issues: Whether Cenvat credit was required to be reversed merely because stock shortage was noticed on the basis of the assessee's own physical verification.

Analysis: The shortage was treated as only a theoretical discrepancy arising from stock verification and reconciliation exercise. The record showed that the assessee maintained a complex computer-based inventory system, had also disclosed reconciliation differences, and there was no evidence of clandestine removal, diversion, or improper utilisation of inputs. The Tribunal followed the earlier order in the assessee's own case and held that, in the absence of proof that the goods were wrongly removed or that credit was incorrectly or improperly taken, mere unreconciled shortage could not justify recovery under Rule 57-I of the Central Excise Rules, 1944.

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

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