Cenvat credit on dutiable inputs is not reversible merely because the final product later becomes exempt.

Cenvat credit validly availed on inputs during a period when the final product was dutiable did not become reversible merely because the product later became exempt from duty. The Tribunal applied the settled principle that lawful credit taken at the time of receipt or use cannot be demanded back solely due to a subsequent exemption, and distinguished cases involving unutilised inputs lying in stock. The demand for reversal of the earlier credit was therefore not sustainable.

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Issues: Whether Cenvat credit validly taken on inputs when the final product was dutiable could be demanded to be reversed merely because the final product subsequently became exempt from duty.

Analysis: The demand was founded on the premise that once the final product became exempt, the credit earlier taken on inputs used for that product could not be retained. The Tribunal applied the settled view that credit validly and legally availed at a time when the final product was subject to duty does not become reversible merely because the product later becomes exempt. The contrary view dealing with inputs lying unutilized did not govern the present facts, where the credit had been taken lawfully during the dutiable period and the issue was reversal after exemption.

Conclusion: The duty demand on the Cenvat credit so taken was not sustainable and the assessee succeeded.

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