Indefeasible Cenvat credit cannot be reversed merely because the final product later becomes exempt.

Valid Cenvat/Modvat credit taken on inputs while the final product was dutiable remained usable even after the finished goods later became exempt. The applicable principle was that lawfully availed credit is indefeasible, without any requirement of one-to-one co-relation between inputs and final output, and later exemption does not by itself create a liability to reverse such credit. A contrary line of authority was treated as inapplicable, and the prior dismissal of a challenge to the Larger Bench view without a speaking order did not alter the governing rule. The proposed recovery of duty, interest, and penalty was therefore unsustainable, and reversal was not warranted.

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Issues: Whether Cenvat/Modvat credit validly taken on inputs could be reversed merely because the final product was subsequently exempted, and whether the related demand, interest, and penalty could be sustained.

Analysis: The credit had been validly taken when the final product was dutiable. The legal position applied was that validly earned credit is available for use without limitation in time and is indefeasible, with no requirement of one-to-one co-relation between inputs and the final product. The later exemption of the finished goods did not, by itself, create a liability to reverse credit already lawfully availed. The view taken in the contrary line of authority was held inapplicable in the light of the binding principle on validly taken credit, and the dismissal of an earlier challenge to the Larger Bench decision without a speaking order did not displace that principle.

Conclusion: Reversal of the credit was not warranted, and the demand for duty recovery, interest, and penalty could not be sustained; the appeal was allowed.

Ratio Decidendi: Credit validly taken on inputs while the final product was dutiable cannot be reversed merely because the final product becomes exempt later, since such credit remains indefeasible unless it was illegally or irregularly taken.

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