CENVAT credit on stock inputs becomes admissible when an SSI unit exits exemption and starts paying duty.

CENVAT credit was admissible on duty-paid inputs lying in stock when an SSI unit opted out of the exemption scheme and began clearing final products on payment of duty. The circular relied on clarified that, once the SSI embargo ceased, credit could be taken on inputs in stock, inputs contained in finished goods, and inputs in process, subject to quantification from documentary records. The contrary denial rested on a misreading of the circular's scope. The disallowance was therefore unsustainable, and the assessee's claim for credit was accepted.

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Issues: Whether CENVAT credit on inputs lying in stock on the date an SSI unit opts out of the exemption scheme and begins paying duty on its final products is admissible.

Analysis: The inputs were duty paid, were available in stock on the date the unit ceased to avail SSI exemption, and were used in the manufacture of final products cleared on payment of duty. The Board's circular clarified that once the embargo under the SSI exemption is lifted and the unit starts paying full duty, credit is admissible on inputs lying in stock, inputs contained in finished goods lying in stock, and inputs in process, subject to quantification on the basis of documentary evidence and records. The denial based on a different paragraph of the circular was held to be based on a misunderstanding of the circular's scope.

Conclusion: CENVAT credit on the inputs lying in stock was admissible and the disallowance was unsustainable.

Final Conclusion: The order of the lower authorities was set aside and the assessee's claim for credit was accepted.

Ratio Decidendi: When an SSI unit opts out of exemption and starts paying duty, it is entitled to CENVAT credit on duty-paid inputs lying in stock that are used in dutiable final products, if the credit is supported by proper records.

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