Cenvat credit reversal not required when final products later become exempt under small scale industry exemption.

An assessee opting for small scale industry exemption was not required to reverse validly availed Cenvat credit on inputs used in semi-finished and processed goods lying in stock when the final products later became exempt. The Tribunal held that there was no one-to-one correlation between particular inputs and finished goods for the purpose of reversal merely because the duty status of the final products changed. Following consistent High Court and Larger Bench authority, it accepted that credit lawfully taken and utilized on dutiable goods could not be denied or reversed on the subsequent exemption of the final product, and the demand was unsustainable.

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Issues: Whether an assessee opting for small scale industry exemption was required to reverse Cenvat credit relatable to semi-finished and processed goods lying in stock on the date of opting for exemption.

Analysis: The Tribunal held that once Cenvat credit had been validly taken and utilized on inputs used for dutiable final products, there was no one-to-one correlation between particular inputs and finished goods so as to require reversal merely because the final products later became exempt. Relying on consistent High Court and Larger Bench authority, it accepted that credit legally availed could not be denied or reversed on the subsequent change in the duty status of the final product.

Conclusion: The assessee was not required to reverse the Cenvat credit on the stock of semi-finished goods and processed material, and the demand could not be sustained.

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