Indefeasible Modvat/Cenvat credit survives later exemption of final products absent an express reversal rule.

A manufacturer that validly earned Modvat/Cenvat credit on inputs is not required to reverse that credit merely because the final product later becomes exempt from excise duty. The relevant entitlement arises when the inputs are received and the credit is lawfully taken, and later exemption of the finished goods does not, by itself, extinguish that credit. Rule 9(2) of the Cenvat Credit Rules, 2004 is treated as materially identical to Rule 57H(5) of the Central Excise Rules, 1944, and in the absence of any express reversal provision, the credit remains indefeasible even for stock, work-in-process, or finished goods held on the date of exemption.

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Issues: Whether a manufacturer, after opting for exemption from excise duty, is required to reverse Modvat/Cenvat credit validly taken on inputs lying in stock, in process, or contained in finished goods on the date of exemption.

Analysis: Rule 9(2) of the Cenvat Credit Rules, 2004 is in identical terms to Rule 57H(5) of the Central Excise Rules, 1944. The principle laid down in the earlier decision on Modvat credit, as followed by the Kerala and Rajasthan High Courts, is that validly taken credit is not liable to reversal merely because the final product later becomes exempt. The relevant entitlement arises when the inputs are received and the credit is validly earned, and the subsequent exemption of the final product does not, by itself, extinguish that credit.

Conclusion: The assessee was not required to reverse the Modvat/Cenvat credit already taken, and the issue is answered in favour of the assessee and against the revenue.

Ratio Decidendi: Validly taken Modvat/Cenvat credit is indefeasible and cannot be reversed solely because the final product is later exempt from duty, where the governing rule contains no provision requiring such reversal.

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