Indefeasible Modvat credit on stock inputs need not be reversed when final products later become exempt.

Where final products became exempt after Modvat credit had been validly taken on inputs already lying in stock, the article states that no reversal was required for the relevant period because no express statutory provision then mandated such reversal. It notes that Rule 11(3) of the Cenvat Credit Rules, 2004 was introduced later, indicating that the reversal requirement was not previously in force. The discussion applies the principle that validly taken credit is indefeasible and, absent a specific reversal rule, does not lapse merely because the final product later becomes exempt. It also refers to the absence of any necessary co-relation between particular inputs and the final product for retention of valid credit.

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Issues: Whether Modvat credit taken on inputs lying in stock had to be reversed when the final product subsequently became exempt from duty, in the absence of an express provision requiring such reversal for the relevant period.

Analysis: The relevant date was when the final product became exempt, and at that time there was no statutory provision requiring reversal of credit on inputs already lying in stock. Rule 11(3) of the Cenvat Credit Rules, 2004 was introduced later and showed that such a requirement was not previously in force. The decision proceeded on the settled principle that validly taken credit is indefeasible and, in the absence of a specific reversal provision, need not be reversed merely because the final product later became exempt. The cited precedent also applied the principle that there is no necessary co-relation between the specific inputs and the final product for retention of valid credit.

Conclusion: The Modvat credit was not required to be reversed, and the assessee succeeded.

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