Cenvat credit remains protected when final products become exempt; lawful credit need not be reversed absent illegality or express rule.

Validly taken Cenvat credit on inputs and capital goods remains indefeasible and is not liable to reversal merely because the finished goods later become exempt from excise duty. The High Court treated the issue as covered by its earlier binding decision on identical facts and applied the Supreme Court principle that credit can be reversed only if it was illegally or irregularly availed, or if the governing rule expressly requires reversal. Because the relevant Cenvat provision was materially identical to the earlier rule considered by the Supreme Court, exemption of the final product did not create a fresh liability to pay back lawfully taken credit. The manufacturer was therefore not required to reverse the credit.

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Issues: Whether a manufacturer is required to reverse or pay the amount equivalent to Cenvat credit already taken on inputs and capital goods used in the manufacture of goods that later become exempt from excise duty.

Analysis: The issue was treated as covered by the earlier binding decision of the same Court on identical facts. That decision applied the principle laid down by the Supreme Court that validly taken credit is indefeasible and cannot be reversed unless the credit was illegally or irregularly availed. It further noted that the language of the relevant Cenvat provision was identical to the earlier excise rule considered by the Supreme Court, and therefore the same interpretation governed the present case. On that basis, exemption of the final product did not create a liability to reverse credit already lawfully taken on inputs used in manufacture.

Conclusion: The manufacturer was not required to reverse the Cenvat credit already taken, and the issue was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Validly taken Cenvat credit is indefeasible and is not liable to reversal merely because the final product later becomes exempt, unless the credit was illegally or irregularly availed or the governing rule expressly provides for reversal.

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