Cenvat credit need not be reversed when final products later become exempt, absent a specific reversal provision.

Cenvat credit validly taken on inputs and finished goods in stock did not have to be reversed merely because the final product later became exempt from duty. The Tribunal applied the principle that lawfully availed credit is a vested benefit and, absent a specific provision requiring reversal, subsequent exemption does not extinguish that credit. It preferred the Larger Bench view over the contrary reasoning adopted by the Commissioner. On that basis, the related demand, interest and penalty were unsustainable.

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Issues: Whether Cenvat credit validly taken on inputs and in respect of finished goods lying in stock had to be reversed merely because the final product became exempt from duty subsequently, and whether the demand, interest and penalty could be sustained.

Analysis: Credit taken lawfully was treated as a vested benefit available to the manufacturer without limitation of time. The Tribunal followed the principle that there is no provision requiring reversal of credit merely because the final product is later exempted. It preferred the Larger Bench view holding that once credit is validly taken, subsequent exemption of the final product does not by itself require reversal. On that basis, the contrary view relied upon by the Commissioner was rejected, and the consequential demand, interest and penalty could not survive.

Conclusion: The credit was not required to be reversed and the impugned demand and penalty were unsustainable, in favour of the assessee.

Ratio Decidendi: Cenvat credit validly taken in accordance with law cannot be reversed merely because the final product becomes exempt subsequently, in the absence of a specific provision requiring such reversal.

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