Cenvat credit protection on pre-exemption inputs and amalgamation carry-forward follows express rule-based entitlement.
Cenvat credit validly earned on inputs received before an exemption notification could not be denied or reversed merely because the finished goods became exempt later, including credit relatable to stock, work-in-progress, and uncleared finished goods. The stated principle is that, absent an express provision authorising retrospective reversal, vested credit cannot be withdrawn after it accrues under the prevailing credit rules. The text also notes that unutilised Cenvat credit of an amalgamating company could be carried forward by the amalgamated company where the rules specifically permitted such transfer, so no demand or recovery could be sustained on that basis.
Issues: (i) Whether Cenvat credit taken on inputs received before the exemption notification, including inputs in stock, work-in-progress, and finished goods not cleared as on the exemption date, could be denied or reversed; and (ii) whether unutilised Cenvat credit of an amalgamating company could be carried forward by the amalgamated company.
Issue (i): Whether Cenvat credit taken on inputs received before the exemption notification, including inputs in stock, work-in-progress, and finished goods not cleared as on the exemption date, could be denied or reversed.
Analysis: The credit had been validly earned when the inputs reached the factory under the then-prevailing Cenvat Credit Rules, 2002. There was no one-to-one correlation between inputs and final products, and no provision in the notification or rules authorising reversal merely because the finished goods became exempt on a later date. A vested credit could not be taken away retrospectively in the absence of express authority of law.
Conclusion: The credit on inputs, work-in-progress, and finished goods connected with inputs received before the exemption date could not be denied or reversed, and the issue was decided in favour of the assessee.
Issue (ii): Whether unutilised Cenvat credit of an amalgamating company could be carried forward by the amalgamated company.
Analysis: Rule 8 of the Cenvat Credit Rules, 2002 specifically permitted carry forward of the unutilised credit of the amalgamating company to the amalgamated company. In the presence of this express enabling provision, no demand or recovery could be sustained.
Conclusion: The unutilised credit was lawfully available to the amalgamated company, and the issue was decided in favour of the assessee.
Final Conclusion: The appeal was allowed on both issues, and the demand for reversal or recovery of the disputed Cenvat credit was not sustained.
Ratio Decidendi: In the absence of an express provision, Cenvat credit validly earned when inputs are received cannot be denied retrospectively due to a later exemption, and a specific rule permitting carry forward of unutilised credit must be given effect according to its terms.
TaxTMI 
AI Drafter ✕
TaxTMI 
