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

Cenvat credit validly taken and utilised on inputs when the final product was still dutiable could not be demanded back merely because the product was later exempt. The credit, once lawfully earned and used, became indefeasible on the basis of Dai Ichi Karkaria and subsequent High Court authorities, and could not be divested by a later exemption notification. Amrit Paper was distinguished because that case involved an exemption conditional on non-availment of credit. Only unutilised credit remaining when the product became fully exempt would lapse.

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Issues: Whether Cenvat credit validly taken and utilized on inputs before the final product became exempt could be demanded back or reversed merely because the final product was subsequently brought under exemption.

Analysis: The credit had been lawfully taken and utilized when the goods were dutiable. On that footing, the credit vested in the assessee and could not be divested merely because an exemption notification applied later. The principle from the Supreme Court decision in Dai Ichi Karkaria and the later High Court decisions was applied. The contrary reliance on Amrit Paper was distinguished because that case involved a different factual and legal setting, where the exemption itself was conditioned on non-availment of credit. The only amount that could not be protected was any credit still lying unutilized when the product became fully exempt.

Conclusion: Reversal or recovery of credit already validly taken and utilized was not sustainable. The assessee succeeded, though any unutilized credit at the time of exemption would lapse.

Ratio Decidendi: Credit validly taken and utilized on dutiable inputs becomes indefeasible and cannot be reversed solely because the final product later becomes exempt; only unutilized credit remaining at the time of exemption may lapse.

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