Cenvat credit on exempted goods and cash refund of reversed amounts held available where credit was lawfully taken earlier.

Credit validly taken on inputs, work-in-process and finished goods while the final product was dutiable was held not to be wiped out merely because exemption was later opted under Notification No. 50/2003-CE, so no reversal was required for the relevant period; the later amendment imposing a specific reversal obligation was treated as prospective. On the refund issue, where the assessee had paid the amount in cash and could not meaningfully utilise re-credit because the unit was operating under exemption, the Tribunal held that refund had to be granted in cash and not by mere re-credit to the Cenvat Credit Account. Revenue's challenge failed on both points.

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Issues: (i) whether the assessee was required to reverse the cenvat credit attributable to inputs, work-in-process and finished goods in stock on the date of opting for exemption under Notification No. 50/2003-CE; (ii) whether the amount paid on such reversal was refundable in cash or only by re-credit in the Cenvat Credit Account.

Issue (i): whether the assessee was required to reverse the cenvat credit attributable to inputs, work-in-process and finished goods in stock on the date of opting for exemption under Notification No. 50/2003-CE.

Analysis: The issue was governed by the settled position that credit validly taken while the final product was dutiable does not get wiped out merely because the final product later becomes exempt. The Tribunal relied on the consistent line of authority interpreting the relevant Cenvat and Modvat provisions, including the principle that reversal is not required for credit lawfully availed before the exemption, and noted that the later amendment introducing a specific reversal requirement operated prospectively and did not apply to the period in question.

Conclusion: The assessee was not required to reverse the cenvat credit on opting for exemption under Notification No. 50/2003-CE, and the Revenue's challenge on this issue failed.

Issue (ii): whether the amount paid on such reversal was refundable in cash or only by re-credit in the Cenvat Credit Account.

Analysis: The Tribunal applied the principle that where the assessee has paid amount in cash and is not in a position to utilize the credit because the unit is operating under exemption, granting only re-credit would defeat the refund. On the authority of the cited High Court decision, the Tribunal held that in such circumstances the refund must be made in cash and not merely by re-credit to the Cenvat Credit Account.

Conclusion: The assessee was entitled to cash refund, and the direction to grant only re-credit was set aside.

Final Conclusion: The assessee succeeded on both substantive questions, the Revenue's appeal was rejected, and the refund was directed to be granted in cash.

Ratio Decidendi: Credit validly taken when the final product was dutiable cannot be reversed merely because exemption is later opted for, and where the assessee cannot utilize the credit, refund of an amount wrongly paid in cash must be returned in cash rather than by mere re-credit.

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