Cenvat credit on duty-paid inputs survives later exemption of final products when the original credit was lawfully taken.

Cenvat credit validly taken on duty-paid inputs used in manufacturing final products is not required to be reversed merely because those final products later become exempt from duty. The scheme was read as allowing immediate credit on lawful availment, with indefeasible entitlement unless the credit was illegally or irregularly taken. Where the manufacturer maintained the necessary records and the inputs were properly used in manufacture, subsequent exemption of the finished goods did not undo the credit already earned. The departmental circular was also consistent with admissibility of credit on common inputs, subject to the prescribed debit before clearance of exempt goods.

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Issues: Whether Cenvat credit validly availed on duty-paid inputs used in the manufacture of final products is liable to be reversed when those final products subsequently become exempt from duty.

Analysis: The relevant credit scheme was construed to permit credit immediately on lawful availment, and there was held to be no provision requiring reversal merely because the final product later became exempt. The Court followed the principle that validly taken credit is indefeasible, subject only to cases where the credit was illegally or irregularly taken. The earlier view was reinforced by the settled position that if the manufacturer had maintained the necessary records and had lawfully taken credit on duty-paid inputs used in manufacture of the final goods, subsequent exemption of the final product does not undo the credit already earned. The departmental circular consistent with this position also recognised admissibility of credit on common inputs, subject to debit before clearance of exempt goods in the manner prescribed.

Conclusion: The assessee was entitled to retain the Cenvat credit and no reversal was required merely because the final products later became exempt; the issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The appeal failed and the Revenue's challenge to the Tribunal's order was rejected.

Ratio Decidendi: Credit validly taken on duty-paid inputs used in manufacture is not liable to reversal solely because the final product subsequently becomes exempt, absent any illegality in the original availment of credit.

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