Proforma credit cannot be reversed retrospectively merely because the finished product later becomes exempt from duty.

Proforma credit validly earned on receipt of inputs and lawfully utilised on clearance of finished computers could not be recovered merely because a later exemption notification made the final product duty-free. Rule 56A contained no express mechanism authorising reversal in that contingency, and the Revenue provisions invoked applied to wrongly allowed credit or procedural irregularities, not to credit correctly taken and used. The later exemption did not retrospectively invalidate the earlier credit entitlement, and the demand for reversal was therefore not sustainable.

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Issues: Whether proforma credit validly taken and utilised under Rule 56A could be recovered merely because, by a subsequent exemption notification, the finished computers became exempt from duty.

Analysis: The credit was lawfully taken when the inputs were received and lawfully utilised when the finished goods were cleared. The later exemption of computers from duty did not make the earlier allowance or utilisation irregular. Rule 56A did not contain any specific provision authorising recovery of credit in such a situation. The provisions relied on by the Revenue dealt with wrongly allowed credit or procedural matters and did not cover a case where there was no mistake, irregularity, or misdirection at either stage. The clarifications relied on also indicated that strict input-output correlation was dispensed with and that proforma credit accrued on receipt of inputs in the factory.

Conclusion: The demand for reversal of credit was not sustainable and the appeal failed.

Ratio Decidendi: Where proforma credit is validly earned and utilised under the governing rule, it cannot be withdrawn retrospectively merely because the finished product is later exempted from duty, unless the statute expressly authorises recovery in that contingency.

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