2026-VIL-1243-GUJ-CE
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CENTRAL EXCISE High Court Cases

Central Excise - Reversal of CENVAT credit on shortage of raw materials - Rule 14 of the CENVAT Credit Rules, 2004 - Respondent-assessee, a manufacturer, found shortage of raw materials in physical stock verification after a theft was detected and reported to the police, and shortages were adjusted in the SAP system through a particular movement entry - Department alleged that the shortages were unreconciled, that the entry was a fictitious book entry, and that the Respondent had not used the inputs on which credit was taken, and the demand was confirmed - The Tribunal set aside the Order-in-Original and the Appellant-Revenue filed an appeal under Section 35G of the Central Excise Act, 1944 - Whether CENVAT credit attributable to raw materials found short in physical stock verification is required to be reversed, and whether the Tribunal wrongly placed the burden of proof on the Revenue contrary to Rule 9(5) - HELD - The Tribunal recorded findings of fact that only one event of theft was detected and reported, that there was no evidence as to where and when the raw material moved out of the factory, and that the Department merely assumed that the shortage was due to theft or removal. There was no allegation that the original credit taken was incorrect or improper - The SAP entry was made only to tally the physical stock with the inventory in the software, as the shortage caused by mis-handling of accounts could not be entered in the SAP accounting at a later stage, and the adjustment was made on stock taking at the time of implementation of the SAP system - The statement relied upon by the Revenue was interpreted in a truncated manner without considering that the entry was made only to see that the physical stock tallied with the inventory. There was no positive evidence that the inputs found short were disposed of otherwise than in the manufacture of final products, and a demand cannot be based on assumption and presumption without tangible evidence. Improper accounting of inputs cannot be a ground to demand CENVAT credit. The decision relied upon by the Revenue for the burden of proof under the Rules is not applicable where the demand itself rests on assumption and presumption - No substantial question of law arises and the Revenue appeal is dismissed - Reliance on statements of third party without cross-examination - Principles of natural justice - Department relied upon the statement of a person who stated that he arranged CENVATABLE invoices for the Respondent without actual supply of materials, and the request of the Respondent for cross-examination was rejected on the ground that the person was a co-noticee and that the statement was only corroborative of the admissions of employees - Whether the Department could rely on the statement for confirming the demand of CENVAT credit without affording cross-examination - HELD - The person making the statement produced no documentary evidence in support of his averments and did not give details of the invoices or the period to which they belonged. No reliance can be placed on the oral statement of a person who has not been subjected to cross-examination during adjudication. The denial of cross-examination was fatal to the reliance placed on the statement. The statement of the former employee related to the adjustment of shortages found in stock taking in the SAP system and was in a different context, and it could not corroborate the allegation of invoices arranged without actual supply of materials. The cross-examination of the person would not have incriminated him in respect of the demand of CENVAT credit - The Tribunal was justified in holding that without affording cross-examination the statement could not be relied upon - The appeal is dismissed.
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