Full reversal of CENVAT credit can neutralise prior availment and preserve exemption eligibility under a notification condition.

Complete reversal of CENVAT credit taken on common inputs used for both dutiable and exempted goods was held to place the assessee in the same position as if no credit had been availed. On that basis, the condition in Notification No. 10/2002-CE was satisfied and the exemption could not be denied. The Tribunal treated the full reversal, together with acceptance of interest liability for the period of utilisation, as sufficient to neutralise the earlier credit availment. The denial of exemption was therefore unsustainable.

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Issues: Whether reversal of the entire CENVAT credit taken on common inputs used for both dutiable and exempted goods could be treated as if no credit had been availed, so as to satisfy the condition of Notification No. 10/2002-CE and preserve the exemption benefit.

Analysis: The appellant had initially taken credit on common inputs, but later reversed the entire credit, including the portion relatable to inputs used for the dutiable spare parts. The dispute turned on whether such reversal neutralised the earlier availment of credit for the purpose of the notification condition. The Tribunal followed the settled position that complete reversal of credit puts the assessee in the same position as if credit had not been taken. The appellant also accepted liability to pay interest for the period during which the credit was utilised.

Conclusion: The reversal was sufficient to treat the credit as not availed, and the denial of exemption was unsustainable; the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where inadmissible CENVAT credit is fully reversed, the legal effect is that the credit is treated as never having been availed for the purpose of satisfying an exemption notification condition.

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