Court Upholds Assessee's Cenvat Credit Rights: Precedent-Setting Decision

The court ruled in favor of the assessee, holding that Cenvat credit on inputs lying in stock when the final product becomes exempt from excise duty cannot be reversed. The court emphasized that once validly taken, Cenvat credit is indefeasible and cannot be reversed unless illegally or irregularly taken. The court overturned the decision of the Appellate Tribunal, citing previous court judgments and established legal principles. The impugned orders were set aside, affirming that the Cenvat credit availed by the assessee on inputs remains with the assessee and cannot be taken away by the Revenue.

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Issues: Whether Cenvat credit validly taken on inputs lying in stock before the exemption of the final product was required to be reversed when the final product became exempt from duty.

Analysis: The dispute turned on the effect of the exemption notification on credit already earned on inputs procured and used before the exemption date. The Court applied the settled principle that credit validly taken on inputs becomes an indefeasible benefit and can be denied or reversed only when the law expressly so provides. It relied on the earlier interpretation of the relevant credit provisions, including the identical language of the earlier Modvat rule and the later Cenvat rule, and held that there is no statutory basis to compel reversal of credit already lawfully availed merely because the final product subsequently became exempt. The Court also treated the issue as already settled by its own earlier decisions and by other High Courts following the Supreme Court's exposition.

Conclusion: The assessee was not required to reverse the Cenvat credit already taken on inputs lying in stock before the exemption came into force, and the demand and penalty were unsustainable.

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