Cenvat credit reversal leads to lapse or payment of balances when opting for small-scale exemption.

Transitional rules require that when a manufacturer or service provider opts for value based exemption, Cenvat credit already taken cannot be used further and any balance except capital goods credit lapses; inputs, inputs in process, and finished goods on which credit was availed must be inventoried and the equivalent credit reversed, with any shortfall paid from the principal account. Manufacturers resuming duty payment may claim credit on inventoried inputs with documentary evidence; the facility to avail credit on stock inputs does not extend to service providers, and credit on input services lapses while capital goods credit may be retained.

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