Cenvat credit already validly taken need not be reversed when final products later become exempt from duty.

Validly taken Cenvat credit on inputs and capital goods was treated as indefeasible once earned, and could not be reversed merely because the final products later became exempt from duty absent a specific recovery provision. The scheme was applied on the basis that no one-to-one correlation is required between inputs and final products, and that only credit on inputs received after the exemption date is barred. Credit already taken on stock, work-in-progress, finished goods and capital goods was therefore not liable to reversal, and the related interest demand also failed.

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Issues: Whether validly taken Cenvat credit on inputs and capital goods was required to be reversed when the final products became exempt from duty, and whether interest was payable on such reversal.

Analysis: The credit had been lawfully taken when the final products were dutiable. Once exemption came into force, the dispute turned on whether the credit already earned could be compelled to be reversed. The Tribunal applied the principle that validly taken Cenvat credit is indefeasible unless a specific provision authorises recovery, and that the scheme does not require one-to-one correlation between inputs and final products. It further relied on the settled position that, on the date exemption takes effect, only credit on inputs received thereafter is barred, while credit already taken on stock, work-in-progress, finished goods, and capital goods is not liable to reversal.

Conclusion: Reversal of the Cenvat credit and the consequential interest demand were not sustainable, and the appeal succeeded.

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