Cenvat credit on inputs for goods later exempted from duty was held recoverable under the credit-reversal rules.

Cenvat credit taken on inputs used in goods that later became fully exempt from duty was held recoverable where the governing rules barred credit on inputs used in exempted goods and provided for recovery of wrongly utilised credit. Credit had been originally taken when the goods were dutiable, but the Tribunal accepted that the subsequent exemption brought the relevant inputs within the recovery bar. The impugned order was set aside and the demand for reversal and recovery of the credit was upheld in favour of the Revenue.

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Issues: Whether Cenvat credit taken on inputs used in the manufacture of goods which subsequently became fully exempt from duty was liable to be reversed or recovered.

Analysis: The credit had been taken when the stove parts were dutiable, but the inputs were admittedly used in the manufacture of stove parts that were later fully exempted. The earlier view permitting retention of credit was distinguished on the basis that the relevant rules contained a specific bar against allowing credit on inputs used in exempted goods and also provided for recovery where credit was wrongly utilized. The Tribunal accepted the Revenue's contention that credit attributable to inputs used in wholly exempted goods could be recovered.

Conclusion: The impugned order was set aside and the demand sustaining reversal/recovery of Cenvat credit was upheld, in favour of the Revenue.

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