Modvat credit on stock shortage upheld where records did not match physical inventory and no error was proved.

Shortage of inputs found during stock verification justified disallowance of Modvat credit and penalty where the recorded balance in RG 23A Part I did not match the physical stock. The assessee's later statement did not establish any recording error or show that the closing balance was wrongly reflected, and the belated plea that some inputs were under process did not alter the stock position relevant to the records. The CEGAT, Kolkata upheld the disallowance and the penalty and rejected the appeal.

---

---

Issues: Whether the disallowance of Modvat credit and the penalty imposed on account of shortage of inputs noticed during stock verification were sustainable.

Analysis: The inputs were found short with reference to the recorded balance in RG 23A Part I during the officers' visit. The subsequent statement filed by the assessee did not establish any error in the maintained records or show that the closing balance was wrongly reflected. The plea that some inputs were in process was not raised at the time of inspection and, in any event, would not alter the physical stock position for the purpose of the recorded balance.

Conclusion: The disallowance of Modvat credit and the penalty were upheld and the appeal was rejected.

---