Cenvat credit on capital goods survives later area-based exemption when credit was validly earned during the duty-paying period.

Cenvat credit on capital goods remained admissible where the goods were procured and installed during the period when the unit was clearing final products on duty payment. The later shift to an area-based exemption did not invalidate credit that had already been validly earned, because entitlement is tested at the stage of taking and using the credit. Applying the settled principle from an earlier coordinate decision, the Tribunal held that the subsequent exemption could not defeat the pre-existing credit. The demand and penalty therefore could not survive.

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Issues: Whether Cenvat credit on capital goods procured and installed during the duty-paying period remained admissible when the assessee later started availing area-based exemption.

Analysis: The capital goods were purchased and put to use when the assessee was clearing final products on payment of duty and had not yet begun availing the area-based exemption. The subsequent shift to exemption did not undo credit that had been validly taken earlier. Following the earlier coordinate decision, the Tribunal applied the settled principle that credit validly earned in the duty-paying stage is not lost merely because the unit later becomes exempt.

Conclusion: The credit was held admissible and the demand and penalty could not survive.

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