Cenvat credit need not be reversed after later exemption of final products if the credit was validly taken and used

Cenvat credit validly taken and utilised when the final product was dutiable was not required to be reversed merely because the product later became exempt. The applicable scheme treated lawfully earned credit as indefeasible unless it was taken or used wrongly or irregularly, and the recovery provisions for wrong credit did not apply where credit was valid at the relevant time. In the absence of a specific statutory reversal requirement or a one-to-one correlation between inputs and the exempted final product, the subsequent exemption did not create a reversal liability. The credit was therefore retained in favour of the assessee.

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Issues: Whether Cenvat credit validly taken and utilised when the final product was dutiable was required to be reversed merely because the final product later became exempt from duty.

Analysis: The applicable credit scheme did not provide for reversal of credit that had been lawfully taken and utilised when the inputs were used in the manufacture of dutiable final products. The Court relied on the principle that credit validly earned is indefeasible unless it was taken or utilised illegally or irregularly. It further held that the provisions for recovery of wrongly taken credit did not apply where the taking and utilisation of credit were lawful at the relevant time, and there was no one-to-one correlation between specific inputs and the final product. The subsequent exemption of the final product did not, by itself, create a liability to reverse the credit.

Conclusion: The input credit was not required to be reversed, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Credit validly taken and utilised under the Cenvat scheme remains available despite a later exemption of the final product, unless the credit was itself taken or utilised wrongly or a specific statutory provision requires reversal.

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