Cenvat credit on input services need not be reversed on debonding when no rule requires reversal after valid availment.

Cenvat credit on input services validly availed while a unit operated as a 100% EOU and was making duty-paid clearances was not required to be reversed on debonding. The credit had been taken on receipt of the services, and the rules did not impose any further reversal obligation merely because the finished goods were later cleared under an exemption notification. Reversal had already been made for inputs and capital goods, but no corresponding requirement existed for input services that had been consumed. The demand for reversal, interest, and penalty was therefore unsustainable, and the assessee succeeded.

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Issues: Whether Cenvat credit availed on input services used while the unit was operating as a 100% EOU had to be reversed on debonding, merely because the finished goods were subsequently cleared under exemption.

Analysis: The relevant service credit was taken when the unit was a 100% EOU and was discharging duty on the clearances. The credit on input services was therefore validly availed on receipt of the service. On debonding, the unit had already reversed credit relatable to inputs and capital goods, but there was no corresponding requirement under the Cenvat Credit Rules to reverse credit on input services that had already stood consumed. The fact that the finished goods were later cleared under an exemption notification did not create a fresh obligation to reverse such service credit.

Conclusion: Reversal of Cenvat credit on input services was not required, and the demand was unsustainable in favour of the assessee.

Final Conclusion: The order confirming reversal of credit, interest, and penalty was set aside, and the appeal succeeded.

Ratio Decidendi: Cenvat credit on input services, once validly availed on receipt while the manufacturer was in a duty-paying regime, is not required to be reversed on subsequent debonding where the rules do not impose such a reversal obligation.

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