Cenvat credit on inputs in stock need not be reversed when exemption is opted prospectively, the Tribunal held.

Cenvat credit validly taken and utilised on inputs, including inputs lying as such and inputs contained in semi-finished or finished goods in closing stock, was not required to be reversed merely because the assessee opted for Notification No. 50/2003-C.E. from a prospective date. The Tribunal applied the earlier Larger Bench principle that lawful credit cannot be recovered solely because the final product later becomes exempt. It rejected the distinction between inputs used in dutiable goods and inputs remaining in stock or process at the time of opting for exemption, and held the demand for reversal and recovery unsustainable.

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Issues: Whether Cenvat credit validly taken and utilised on inputs, including inputs lying as such and inputs contained in semi-finished or finished goods as closing stock, was required to be reversed or recovered when the assessee opted for Notification No. 50/2003-C.E. from a prospective date.

Analysis: The Tribunal held that the earlier Larger Bench decision controlled the issue and that the correct principle is that where credit has been legally taken and legally utilised, there is no scope for recovery merely because the final product subsequently becomes exempt. The distinction sought to be drawn between credit taken on inputs used in dutiable final products and credit on inputs lying as such was rejected. It was further noted that the same issue had been decided in favour of the assessee in a similar matter involving prospective availment of the notification benefit.

Conclusion: The demand for reversal and recovery of the Cenvat credit was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The orders of the lower authorities were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Credit validly taken and utilised cannot be recovered merely because the final product later becomes exempt, including where the credit relates to inputs in stock or in process at the time of opting for exemption.

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