Cenvat credit on stock and work-in-progress need not be reversed when the final product later becomes exempt from duty.

Valid Cenvat credit taken when tractors were dutiable was not required to be reversed merely because tractors later became exempt from duty. The position discussed is that there is no general rule requiring reversal of credit on inputs lying in stock, in process, or contained in finished goods at the date of exemption, and no necessary co-relation is required between each input and the final product cleared. Valid credit is treated as indefeasible unless it was illegally or irregularly taken. The later insertion of Rule 11(3) was treated as clarificatory only from its commencement and did not affect credit already accrued on the facts considered.

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Issues: Whether Cenvat credit validly taken on inputs lying in stock, in process, or contained in finished tractors as on the date of exemption had to be reversed or repaid after tractors became exempt from duty.

Analysis: The credit on inputs was validly taken when the final product was dutiable. The legal position applied was that there is no provision requiring reversal of credit merely because the final product becomes exempt later, and there is no necessary co-relation between the particular input and the final product cleared. The Court followed the principle that valid Cenvat credit is indefeasible and can be reversed only where it was illegally or irregularly taken. The subsequent insertion of Rule 11(3) was treated as clarificatory of the position for cases after its commencement and did not alter the entitlement already accrued on the facts of the present case.

Conclusion: The assessee was not required to reverse the Cenvat credit on inputs and finished goods lying in stock as on the exemption date.

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