Cenvat credit entitlement sustained where validly earned credit could not be recovered after retrospective amendment and finality of earlier proceedings.

Accumulated AED (GSI) Cenvat credit taken on inputs and later used for payment of basic excise duty was treated as validly earned where the credit had been taken on proper duty-paying documents and the subsequent amendment to Rule 3(6) of the Cenvat Credit Rules, 2002 permitted utilisation. The retrospective changes under Section 88 of the Finance Act, 2004 and the recovery mechanism under Section 125 of the Finance Act, 2005 were not applied to defeat that already-accrued entitlement, particularly since prior proceedings on the same issue had attained finality in favour of the assessee. The demand for recovery was therefore held unsustainable and the credit was directed to be restored.

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Issues: Whether the accumulated Cenvat credit of AED (GSI) availed on inputs and later utilised for payment of basic excise duty was liable to be recovered and whether the credit was required to be restored in view of the statutory amendments and the earlier finality attained on the same issue.

Analysis: The appellants had availed AED (GSI) credit on inputs under valid duty paying documents and utilised the credit after the amendment to Rule 3(6) of the Cenvat Credit Rules, 2002 permitted such utilisation. The later retrospective amendment under Section 88 of the Finance Act, 2004 and the recovery mechanism under Section 125 of the Finance Act, 2005 were considered in the light of prior judicial decisions holding that the credit had been legitimately earned and that debits made pursuant to the statutory change could not be treated as having exhausted the assessee's entitlement where the credit was otherwise validly taken. The Court also noted that the very issue had already attained finality in favour of the assessee in earlier proceedings and that the Revenue could not re-agitate the settled dispute.

Conclusion: The demand for recovery was not sustainable and the credit was held to be restored. The appeals were allowed in favour of the assessee.

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