Cenvat credit lapse rules apply only within the statute's stated scope, and prospective amendments cannot cut off earlier credit balances.

Rule 9(2) of the Cenvat Credit Rules, 2002 was treated as applying only where an assessee opts for a value-based exemption; because the exemption under Notification No. 30/2004-CE was not value based, the provision could not be used to require reversal or lapse of the credit balance. Rule 11(3) of the Cenvat Credit Rules, 2004, inserted from 01.03.2007, was held to operate prospectively only and could not be applied to deny credit for earlier periods. On that reasoning, the demand linked to lapse of the Cenvat credit balance was set aside, while the admitted duty demands were sustained.

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Issues: (i) Whether the balance Cenvat credit was required to be reversed or treated as lapsed on opting for exemption under Notification No. 30/2004-CE under Rule 9(2) of the Cenvat Credit Rules, 2002. (ii) Whether Rule 11(3) of the Cenvat Credit Rules, 2004 applied retrospectively to require lapse of the credit balance.

Issue (i): Whether the balance Cenvat credit was required to be reversed or treated as lapsed on opting for exemption under Notification No. 30/2004-CE under Rule 9(2) of the Cenvat Credit Rules, 2002.

Analysis: Rule 9(2) was held applicable only where the assessee opts for a value-based exemption. The exemption in question was not value based. The Tribunal followed its earlier view that the provision did not govern such a case.

Conclusion: Rule 9(2) did not apply, and the demand based on lapse of credit under that provision could not be sustained.

Issue (ii): Whether Rule 11(3) of the Cenvat Credit Rules, 2004 applied retrospectively to require lapse of the credit balance.

Analysis: Rule 11(3) was inserted by Notification No. 10/2007-CE with effect from 01.03.2007. The Tribunal relied on the prior decision approved by the Karnataka High Court to hold that the amendment was prospective and not available for periods anterior to its commencement. Therefore, it could not be used to deny credit for the period in dispute.

Conclusion: Rule 11(3) had only prospective operation and could not justify the demand for the credit balance in the present case.

Final Conclusion: The demands relating to the cenvat credit balance were set aside, while the duty demands conceded by the assessee were sustained, resulting in partial relief.

Ratio Decidendi: A provision requiring reversal or lapse of Cenvat credit on exemption will operate only within the conditions and temporal scope expressly provided by the rule, and an amendment inserting such a restriction prospectively cannot be applied to prior periods.

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