Cenvat credit on inputs need not be reversed when a final product becomes exempt later; refundable deposit follows.

Cenvat credit validly taken on duty-paid inputs when the final product was dutiable is not required to be reversed merely because the final product later becomes exempt. The operative principle is that subsequent exemption does not retrospectively affect the legality of credit already availed. On that basis, where the assessee voluntarily deposited the credit amount with interest after the product became exempt, the amount was refundable because reversal was not legally due.

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Issues: Whether Cenvat credit taken on inputs is required to be reversed when the final product was dutiable at the time of availment of credit but became exempted later, and whether the amount paid towards such reversal with interest was refundable.

Analysis: The amount of credit related to inputs used in manufacture was availed when the final product was dutiable. The final product was later exempted, and the assessee voluntarily deposited the credit amount with interest. The controlling principle applied was that credit validly availed on duty-paid inputs cannot be reversed merely because the final product subsequently becomes exempt, and the earlier availability of exemption does not alter the legality of the credit already taken.

Conclusion: The reversal of Cenvat credit was not required, and the amount deposited with interest was refundable to the assessee.

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