Modvat credit cannot be denied on conjecture when stock records and factory storage show accounted inputs used for manufacture.

Modvat credit cannot be denied on mere presumption where inputs are recorded in RG-23A, shown as received and issued for manufacture, and found stored within the factory. The adjudicating authority must rest on positive evidence of clandestine removal or misuse, not suspicion alone, and a denial unsupported by such evidence lacks a proper speaking basis. On the facts noted, no material rebutted the assessee's accounting entries or proved clandestine disposal, so the penalty could not be sustained and the impugned order was set aside.

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Issues: Whether Modvat credit could be denied and penalty sustained on the basis of presumption that the inputs, though accounted for in RG-23A and lying within the factory premises, were likely to be disposed of otherwise than for use in manufacture.

Analysis: The entries in RG-23A Part I and Part II showed receipt and issue of the soap compound for use in manufacture, and the material was found stored within the factory premises. The disallowance was founded on an assumption of possible clandestine disposal without positive proof. In such circumstances, the adjudicating authority was required to rely on evidence and not on mere suspicion or presumption. The record did not show any evidence of clandestine removal or any basis to negate the accounting entries maintained by the assessee. The order was also found to lack a proper speaking basis for the findings recorded against the assessee.

Conclusion: Modvat credit could not be denied on conjecture, and the penalty could not be sustained. The appeal succeeded and the impugned order was set aside.

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