Cenvat credit on components cleared after reversal cannot be denied absent retrospective rule change.

Vendors were entitled to Cenvat credit on car components cleared as such by the original importer after full reversal of the credit taken on import. The Tribunal treated the earlier removal of inputs as such as requiring restoration of the original position through reversal of the credit already availed, and found the pre-amendment text of Rule 57AB materially similar in effect to the earlier rule considered in prior decisions. The later substitution of the rule was not shown to be retrospective, so it could not be used to deny credit on the duty reflected in the importer's documents. The credit denial was therefore unsustainable.

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Issues: Whether the vendors were entitled to Cenvat credit on components cleared by the original importer after reversal of credit, and whether the amendment to Rule 57AB could be applied retrospectively to deny such credit.

Analysis: The imported car components had been classified as motor vehicles under the tariff on the basis of the interpretative rule, and the original importer had taken credit of the additional customs duty and thereafter removed the goods as such to the vendors after reversing the entire credit. The earlier Tribunal decisions on removal of inputs as such held that the legal fiction in the relevant credit rule required restoration of the original position by reversal of the credit already taken. The pre-amendment text of Rule 57AB was treated as materially similar in effect to the earlier rule considered in those decisions, and there was no indication that the later substitution of the rule was intended to operate retrospectively.

Conclusion: The credit denial was unsustainable, and the vendors were entitled to avail the credit on the duty shown in the documents issued by the original importer.

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