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Issues: (i) Whether credit already taken on inputs lying in stock and contained in finished goods could be recovered when the final product became exempt from duty. (ii) Whether the demand was barred by limitation under the relevant recovery provision.
Issue (i): Whether credit already taken on inputs lying in stock and contained in finished goods could be recovered when the final product became exempt from duty.
Analysis: The appellant had taken credit when the final product was dutiable. On the date of exemption, Rule 57C barred availment of credit for inputs used in exempted final products, but it did not justify recovery of credit already validly taken before the exemption date. The credit taken prior to the exemption was therefore admissible, and the recovery ordered on merits could not stand.
Conclusion: The issue is decided in favour of the assessee.
Issue (ii): Whether the demand was barred by limitation under the relevant recovery provision.
Analysis: The last credit had been taken in February 1995, whereas the show cause notice was issued only on 29-9-1995 / 9-10-1995. On that chronology, the demand was beyond the permissible period for recovery under the rule invoked.
Conclusion: The issue is decided in favour of the assessee.
Final Conclusion: The order of recovery was unsustainable both on merits and on limitation, and the assessee succeeded in the appeal.
Ratio Decidendi: Credit validly taken on inputs before the final product becomes exempt cannot be recovered merely because the finished product later becomes exempt, and a recovery notice issued beyond the prescribed period is barred by limitation.
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