Indefeasible Cenvat Credit: validly taken credit cannot be reversed merely because the final product later becomes exempt.

Valid Cenvat credit taken on inputs and capital goods when the final product was dutiable could not be recovered merely because the product later became exempt. The Tribunal applied the principle that such credit is indefeasible once validly availed, and that reversal is justified only where the credit is shown to have been illegally or irregularly taken. It also noted that there is no necessary co-relation between a particular raw material and the final product for valid credit. On the facts, the demand was sustainable only to the extent of the credit specifically shown as inadmissible in the notice, namely Rs. 2,27,130, and the remaining recovery and penalty were set aside.

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Issues: Whether Cenvat credit availed on inputs and capital goods brought into the factory when the final product was dutiable could be recovered merely because the final product later became exempt, and whether recovery could be sustained only for the portion shown to have been irregularly availed.

Analysis: The Tribunal applied the principle that credit validly taken on receipt of inputs becomes available for use and cannot be reversed merely because the final product later changes its duty status. Relying on the Supreme Court's exposition, it held that there is no necessary co-relation between the particular raw material and the final product for purposes of valid Cenvat credit, and that reversal is permissible only where the credit is shown to have been illegally or irregularly taken. On the facts, the show cause notice did not allege irregular availment for the entire demand and specifically supported only the credit of Rs. 2,27,130/- as inadmissible.

Conclusion: Recovery of Cenvat credit was not sustainable except to the extent of Rs. 2,27,130/-; the remaining demand and penalty were set aside.

Ratio Decidendi: Validly taken Cenvat credit is indefeasible and cannot be reversed unless the credit is shown to have been illegally or irregularly taken.

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