Cenvat credit on opting for exemption need not be reversed where valid credit was already earned and no input-to-product correlation exists.

On opting out of the Cenvat credit scheme and availing small scale exemption, the assessee was not required to reverse credit attributable to inputs in stock, inputs in process, or inputs contained in finished goods by cash payment through PLA. The analysis states that the credit had been lawfully earned and utilised when the final products were dutiable, and there was no one-to-one correlation between particular inputs and the finished goods cleared. In the absence of a statutory requirement to trace validly availed credit to specific goods in stock, the credit already taken could not be denied merely because exemption was later chosen.

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Issues: Whether, on opting out of the Cenvat credit scheme and availing small scale exemption, the assessee was required to reverse the Cenvat credit attributable to inputs lying in stock, inputs in process, and inputs contained in finished goods by cash payment through PLA in the absence of sufficient balance.

Analysis: The assessee had lawfully taken and utilised the credit when the final products were dutiable. The authorities found that there was no one-to-one correlation between particular inputs and the final products manufactured and cleared, and therefore the credit could not be confined to any specific raw material. On that basis, the credit already availed was not required to be reversed merely because the assessee later opted for exemption. The applied principle was that validly availed input credit, once earned and utilised under the scheme, is not to be denied by tracing it to particular goods in stock in the absence of a statutory requirement to do so.

Conclusion: The assessee was not required to reverse the Cenvat credit of Rs. 88,731/- through cash payment or PLA.

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