Modvat credit on HDPE granules cannot be denied without proof of diversion, substitution, or actual discrepancy in use.

Modvat credit on HDPE granules used to manufacture HDPE pipes could not be denied merely because a particular grade of granules was not specifically shown in the final product. The Tribunal relied on its earlier decision on identical facts and found no evidence that the inputs received were diverted, sold in the market, or replaced by unaccounted material. Technical opinions and industry correspondence supported the position that different grades of HDPE granules could be blended to meet buyer specifications. As the Department failed to prove actual discrepancy by trial manufacture or credible evidence of substitution or disposal, the dispute was treated as resting on assumption rather than proof, and credit was allowed to the assessee.

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Issues: Whether Modvat credit on HDPE granules used in the manufacture of HDPE pipes could be denied on the ground that a particular grade of granules was not shown to have been used in the final product.

Analysis: The Tribunal followed its earlier decision on identical facts and found no evidence that the granules received by the appellants had been diverted or sold in the market, or that some other unaccounted granules had been used instead. The materials on record, including technical opinions and correspondence from industry bodies, showed that different grades of HDPE granules could be blended to produce pipes meeting the buyer's specifications. The Department had not established any actual discrepancy by trial manufacture or by credible evidence of disposal or substitution of inputs. The dispute was therefore held to rest on assumptions rather than proof.

Conclusion: Modvat credit could not be denied and the issue was decided in favour of the assessee.

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