Indefeasible input credit survives later exemption where the credit was lawfully taken and utilised during the dutiable period.

Credit taken and utilised on inputs while final products were still dutiable was not required to be reversed merely because the products later became exempt under an exemption notification. The Tribunal applied its earlier view, based on the Larger Bench principle, that credit lawfully earned and used during the dutiable period remains indefeasible. The relevant inputs included stock, work-in-process, and finished goods held when exemption was opted for, but subsequent exemption did not create a retrospective reversal liability.

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Issues: Whether credit validly taken and utilized on inputs when the final products were dutiable had to be reversed merely because the final products later became exempt on exercise of an exemption notification.

Analysis: The dispute concerned credit attributable to inputs used in stock, work-in-process, and finished goods at the time the assessee opted for exemption. The Tribunal followed its earlier decision, which in turn relied on the Larger Bench view, that where credit was lawfully taken and lawfully utilized during the period when the final products were dutiable, subsequent exemption does not create any liability to reverse that credit. The governing principle applied was that credit validly earned and utilized becomes indefeasible and is not recoverable merely because the final product later attracts exemption.

Conclusion: The credit was not required to be reversed, and the issue was decided in favour of the assessee and against the Revenue.

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