CENVAT credit on inputs need not be reversed when final products later become exempt from duty.

CENVAT credit validly taken and utilised on inputs used in the manufacture of dutiable final products is not required to be reversed merely because those final products later become exempt from duty. The Tribunal followed the settled position already affirmed by the High Court and held that the later change in duty status does not, by itself, create a reversal obligation for credit lawfully availed during the dutiable period. The demand for reversal was therefore unsustainable and was set aside.

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Issues: Whether CENVAT credit taken and utilised on inputs used in the manufacture of dutiable final products is required to be reversed when the final products subsequently become exempt from duty.

Analysis: The dispute concerned credit availed on inputs used for manufacture of goods that were initially dutiable but later cleared without duty after the legal position on manufacture changed. The Tribunal noted that the issue was already settled by the Larger Bench, affirmed by the High Court, which held that credit legally taken and utilised on dutiable final products does not become reversible merely because the final product later becomes exempt.

Conclusion: The demand for reversal of CENVAT credit was not sustainable and was set aside.

Ratio Decidendi: CENVAT credit validly taken and utilised on inputs for dutiable final products is not required to be reversed merely because the final product subsequently becomes exempt from duty.

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