CENVAT credit on capital goods need not be reversed when transitional exemption applies only to inputs and input services.

CENVAT credit on capital goods was not required to be reversed when final products later became exempt and the manufacturer opted for transitional exemption. The transitional rule was confined to credit on inputs or input services lying in stock, in process, or contained in final products on the date exemption was exercised, and did not extend to capital goods. Because the capital goods were received when the goods were dutiable and were not used exclusively for exempted goods, denial or reversal of credit was unjustified. Reversal of credit on the stock of capital goods was therefore not warranted.

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Issues: Whether CENVAT credit availed on capital goods was required to be reversed when the final products subsequently became exempt from duty and the manufacturer opted for exemption under the transitional rule.

Analysis: The credit dispute related to capital goods, not inputs or input services. The relevant transitional provision applies only to credit earned on inputs or input services lying in stock, in process, or contained in final products on the date exemption is exercised. It does not extend to capital goods. Since the capital goods had been received when the final products were dutiable and were not used exclusively for exempted goods, denial or reversal of credit on that basis was not justified.

Conclusion: Reversal of CENVAT credit on the stock of capital goods was not warranted. The assessee succeeded on the issue.

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