Cenvat credit already validly availed need not be reversed merely because the final product later becomes exempt.

Once Cenvat credit is validly taken on inputs used to manufacture dutiable goods, later exemption of the final product does not by itself require reversal of that credit. The Tribunal applied the settled principle that no further co-relation between the input and the exempted clearances is needed to preserve credit already lawfully availed. Only inputs received after the final product becomes exempt are outside the credit scheme. Credit relating to work-in-process and finished stock, where the underlying credit was validly taken before exemption, was therefore not liable to reversal, and the demand for reversal was unsustainable.

---

---

Issues: Whether cenvat credit validly taken on inputs used in the manufacture of goods was required to be reversed when the final product later became exempt from duty, including credit relatable to work-in-process and finished stock.

Analysis: The Tribunal followed the settled position that once credit is validly taken when the goods are dutiable, subsequent exemption of the final product does not by itself create a liability to reverse that credit. It was accepted that no co-relation between the input and the final product cleared is required for the continued availability of validly availed credit. The relevant principle is that, from the date the final product becomes exempt, credit cannot be taken on inputs received thereafter, but credit already lawfully taken before exemption is not to be reversed merely because the output later becomes exempt.

Conclusion: The demand for reversal of cenvat credit was not sustainable and the issue was decided in favour of the assessee.

---