Cenvat credit denial fails where shortages are explained by processing losses and diversion is not proved.

Tribunal findings on Cenvat credit were upheld where shortages were attributed to posting errors and processing losses, with no material showing diversion of inputs; those factual conclusions were neither irrational nor perverse, so no substantial question of law arose. On the alleged diversion of imported raw material, the Tribunal also found the Revenue had not proved diversion on the facts, and reliance on truck owners' and drivers' statements without proper compliance with Section 9D was insufficient to upset that conclusion. As the substantive findings stood, remand to the adjudicating authority was rejected and the assessee's relief remained undisturbed.

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Issues: (i) Whether the denial of Cenvat credit on account of shortage of raw material was sustainable and gave rise to any substantial question of law; (ii) whether the denial of Cenvat credit on the alleged diversion of imported raw material and the objection based on Section 9D of the Central Excise Act, 1944 were liable to be interfered with; (iii) whether any remand to the adjudicating authority was warranted.

Issue (i): Whether the denial of Cenvat credit on account of shortage of raw material was sustainable and gave rise to any substantial question of law.

Analysis: The explanation accepted by the Tribunal was that the shortages were attributable to posting errors and processing losses, which were negligible in the context of overall purchases and production. The record disclosed no material showing diversion of inputs, and the Tribunal's appreciation of these facts was neither irrational nor perverse.

Conclusion: The issue was answered against the Revenue and in favour of the assessee, and no substantial question of law arose.

Issue (ii): Whether the denial of Cenvat credit on the alleged diversion of imported raw material and the objection based on Section 9D of the Central Excise Act, 1944 were liable to be interfered with.

Analysis: The Tribunal examined the evidence relating to transport and alleged diversion, considered the manner in which statements of truck owners and drivers were relied upon, and found that the procedure under Section 9D had not been properly followed. Independently of that procedural defect, the Tribunal also found that the Revenue had failed to establish diversion on the facts.

Conclusion: The issue was answered against the Revenue and in favour of the assessee, and the denial of Cenvat credit on this count was upheld as unsustainable.

Issue (iii): Whether any remand to the adjudicating authority was warranted.

Analysis: Once the Tribunal's factual conclusions on the substantive disputes were found to be justified and no substantial question of law arose, there was no basis to send the matter back for further adjudication.

Conclusion: The request for remand was rejected.

Final Conclusion: The appeal failed in entirety and the Tribunal's relief to the assessee was left undisturbed.

Ratio Decidendi: A reasoned factual finding of the Tribunal on shortage, processing loss, and alleged diversion of inputs will not raise a substantial question of law unless it is shown to be perverse or unsupported by the record, and reliance on statements without compliance with Section 9D cannot displace that conclusion where diversion is otherwise not proved.

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