Cenvat credit on WIP and finished goods allowed after exemption, while stock inputs lost eligibility and interest remained payable.

Cenvat credit validly taken and utilised while the final product was dutiable was not required to be reversed merely because the product later became exempt, so credit attributable to inputs contained in work-in-process and finished goods remained admissible. Credit on inputs lying in stock as such on the date the exemption came into force was not admissible, because those inputs were no longer relatable to a taxable final product. In light of the substantial admissibility of credit, the penalty was set aside, but interest continued to be payable on the inadmissible portion of credit.

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Issues: Whether Cenvat credit was admissible on inputs contained in work-in-process and finished goods when the final product became exempt, and whether credit on inputs lying in stock on the date of exemption was admissible.

Analysis: The Tribunal applied the principle that credit validly taken and utilised during the period when the final product was dutiable is not required to be reversed merely because the final product subsequently becomes exempt. On that basis, credit attributable to inputs contained in work-in-process and finished goods was held admissible. However, where inputs were lying in stock as such on the date the exemption came into force, credit was held not admissible. In view of the substantial admissibility of credit, the penalty was set aside, while interest was held payable on the inadmissible portion.

Conclusion: Cenvat credit was admissible in respect of inputs contained in work-in-process and finished goods, but not admissible for inputs lying in stock on the date of exemption; penalty was set aside and interest remained payable on the inadmissible credit.

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