Cenvat credit reversal not required when final goods later become exempt or concessional, if credit was validly taken earlier.

Cenvat credit on inputs was to be tested at the time the inputs were received and used in manufacture, not by later changes in the duty status of the final products. Where the final goods were dutiable when credit was originally taken, subsequent exemption or concessional duty did not retrospectively invalidate that credit. The manufacturer was therefore not required to reverse Cenvat credit on inputs, including inputs forming part of work-in-progress and finished goods lying in the factory.

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Issues: Whether the manufacturer was required to reverse Cenvat credit taken on inputs used in goods that later became eligible for concessional or exempt duty, including inputs in stock, work-in-progress, and finished goods lying in the factory.

Analysis: The applicable credit scheme required Cenvat credit to be taken when inputs were received in the factory. The entitlement to credit was examined with reference to the position when the inputs were received and used for manufacture, not merely with reference to the later stage when the final product was cleared. The decisive consideration was that the final products were dutiable when the credit was originally availed and the subsequent availing of exemption or concessional duty did not retrospectively nullify the credit already validly taken. The reasoning followed the view that credit law does not permit reversal merely because the final product later becomes exempt or eligible for concessional treatment.

Conclusion: The appellant was not required to reverse the Cenvat credit on inputs, including inputs contained in work-in-progress and finished goods lying in the factory.

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