Cenvat credit reversal on stock at exemption crossover upheld for inputs and finished goods remaining in inventory.

Cenvat credit on inputs and finished goods remaining in stock as on 31.03.2006 was held reversible where the assessee had earlier operated under SSI exemption and later resumed dutiable clearances. The Court accepted that credit attributable to stock lying on the relevant date, including inputs contained in finished goods, had to be reversed under the Cenvat Credit Rules when the exemption regime no longer applied. Relying on the earlier precedent followed by the Tribunal, the demand for reversal and recovery was upheld as consistent with the central excise framework.

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Issues: Whether cenvat credit taken on inputs and finished goods lying in stock as on 31.03.2006 was reversible and recoverable after the assessee crossed the SSI exemption limit and resumed dutiable clearances.

Analysis: The stock position showed that inputs and finished goods remained unutilized as on the relevant date, and the assessee had earlier enjoyed SSI exemption under Notification No. 8/2003-C.E. The governing scheme required reversal of credit where inputs lying in stock or contained in finished goods were attributable to the period in which exemption applied or where the credit had been taken against goods that later became subject to reversal. Applying the principle affirmed in the earlier precedent relied on by the Tribunal, the Court held that credit relatable to stock remaining on 31.03.2006 was liable to be reversed. The demand raised by the Revenue was therefore consistent with the Cenvat Credit Rules and the central excise regime.

Conclusion: The issue was decided in favour of the Revenue; the demand for reversal and recovery of cenvat credit on the stock lying as on 31.03.2006 was upheld.

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