Cenvat credit reversal not required where final product exemption lacks an express statutory basis for denial of valid credit.

Validly taken Cenvat credit on inputs, work-in-progress and finished goods could not be reversed merely because exemption was claimed for PSC pipes used in a project of national importance. The exemption notification contained no value-based or quantity-based condition triggering reversal, and the governing credit provisions were held inapplicable on the facts. In the absence of an express statutory requirement or a legally sustainable basis, and without a demonstrated one-to-one correlation justifying denial, the demand for reversal was held unsustainable. The Tribunal set aside the lower authority's order and allowed the appeal.

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Issues: Whether the assessee was required to reverse Cenvat credit on inputs, work-in-progress and finished goods lying in stock when exemption from duty was claimed for PSC pipes used in a project of national importance.

Analysis: The exemption notification did not impose any value-based or quantity-based restriction that would attract reversal of credit. The Tribunal held that the relevant Cenvat credit provisions were not applicable on the facts, and that validly taken credit could not be compelled to be reversed in the absence of a legally sustainable basis or a demonstrated one-to-one correlation between input and output. Reliance was placed on the principle that valid credit is an indefeasible right and cannot be taken back by executive action merely because the final product became exempt.

Conclusion: The demand to reverse Cenvat credit was not sustainable and the assessee succeeded.

Final Conclusion: The order of the lower authority was set aside and the appeal was allowed.

Ratio Decidendi: Validly taken Cenvat credit cannot be reversed merely because exemption is availed for the final product, unless the governing provision expressly requires such reversal or the department establishes a legally relevant basis for denial.

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