Cenvat credit need not be reversed when final products later become exempt under an area-based notification.

Credit lawfully taken on inputs in stock or lying unutilised in the Cenvat account was not required to be reversed merely because the final products later became exempt under area-based Notification No. 50/2003-CE. The Tribunal applied the settled principle that, absent a specific statutory provision, there is no general power to compel reversal of validly availed input credit when exemption subsequently attaches to the final product. Following earlier precedent in identical exemption-based situations, it held that the unutilised credit remained available and did not lapse on the change in duty status.

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Issues: Whether credit of inputs lying in stock or unutilised in the Cenvat account on the date of opting for area based exemption under Notification No. 50/2003-CE was required to be reversed.

Analysis: The dispute turned on whether validly taken credit could be reversed merely because the final products subsequently became exempt. The Tribunal followed the settled view that credit lawfully taken when the final product was dutiable remains available unless the statute specifically provides for reversal. Reliance was placed on the interpretation of the relevant credit provisions, including the principle that there is no general power to demand reversal of such credit on the final product becoming exempt, and on earlier binding precedent which had already applied the same principle to identical exemption-based situations.

Conclusion: The credit lying unutilised in the Cenvat account was not required to be reversed, and the issue was decided in favour of the assessee.

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