CENVAT reversal before utilisation preserves exemption entitlement, and later circulars override inconsistent earlier clarification.

Reversal of CENVAT credit before its utilisation is treated as equivalent to non-availment of credit for purposes of exemption under Notification No. 30/2004-C.E., so the exemption could not be denied merely because credit had initially been taken. A later circular issued in light of the Supreme Court ruling prevailed over an earlier contrary clarification, and the revisional authority's reliance on the older circular alone was unsustainable. The revisional order was set aside and the assessee's appellate relief restored.

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Issues: (i) whether reversal of CENVAT credit before utilisation amounts to non-availment of credit so as to preserve entitlement to exemption under Notification No. 30/2004-C.E.; (ii) whether the revisional order could be sustained by relying on the earlier circular dated 01.02.2007 while ignoring the later circular dated 08.11.2007 issued in light of the Supreme Court ruling.

Issue (i): whether reversal of CENVAT credit before utilisation amounts to non-availment of credit so as to preserve entitlement to exemption under Notification No. 30/2004-C.E.

Analysis: The governing principle applied was that where credit taken on inputs is reversed before it is utilised, the reversal is treated as equivalent to not having taken credit at all. The later departmental circular aligned the notification with that principle and clarified that denial of exemption would not be justified merely because credit had been taken at an earlier stage, if it stood reversed before utilisation.

Conclusion: The assessee remained entitled to the exemption and the benefit could not be denied on the ground of prior taking of credit alone.

Issue (ii): whether the revisional order could be sustained by relying on the earlier circular dated 01.02.2007 while ignoring the later circular dated 08.11.2007 issued in light of the Supreme Court ruling.

Analysis: The revisional authority proceeded on the basis of the earlier circular alone and did not consider the later circular, which superseded the earlier clarification to the extent it treated reversal before utilisation as insufficient. The order was therefore contrary to the settled position reflected in the Supreme Court ruling and the subsequent administrative clarification.

Conclusion: The revisional order was unsustainable.

Final Conclusion: The challenge succeeded, the revisional order was set aside, and the appellate relief granted to the assessee was restored.

Ratio Decidendi: Reversal of CENVAT credit before its utilisation is legally equivalent to non-availment of credit for the purpose of claiming exemption, and a later circular consistent with that principle prevails over an earlier contrary clarification.

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