Modvat credit and duty demand fail where shortage is based only on unreliable dip readings and no diversion is proved.

Modvat credit denial, duty demand and penalties were unsustainable where the alleged input shortage was worked out only from dip readings. The Tribunal found that the same method also showed excess quantities, the overall discrepancy was minor, and no independent evidence proved diversion of inputs or short supply by the seller. On that basis, the estimated shortage was treated as unreliable, and the earlier Tribunal view that such marginal variations cannot support demand was followed. The impugned order was set aside and the appeals were allowed with consequential relief.

---

---

Issues: Whether the denial of Modvat credit, the duty demand, and the penalties were sustainable when the alleged shortage of inputs was worked out only on the basis of dip readings and the excess quantities shown by the same method were not considered.

Analysis: The only foundation for the shortage finding was the comparison of quantities derived from dip readings. The discrepancy was found to be small when excess and shortage figures were taken together, and the same method showed variations in both directions. No other material showed diversion of inputs from the factory or short supply by the seller. In these circumstances, the estimated shortage based solely on dip readings was held to be unreliable, and the earlier Tribunal view treating such minor differences as insufficient to sustain duty demand was followed.

Conclusion: The denial of credit, the duty demand, and the penalties were not sustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A duty demand or denial of credit cannot be sustained merely on a disputed quantity difference derived from dip readings, particularly where the variation is minor, occurs in both directions, and is unsupported by independent evidence of diversion or short supply.

---