CENVAT credit need not be reversed where the manufacturing process is held as not chargeable to excise duty by the Courts [Section 5B] :

Sometimes it happens that a process undertaken by a manufacturer is held as not chargeable to excise duty by the Courts, though the assessee has been availing credit of excise duty/service tax/cess paid on the inputs/capital goods/input services used in manufacturing the final product and paying excise duty on such final products. In such cases the assessee is at liberty to approach the Central Government for issue of appropriate notification for regularization of the CENVAT credit availed under section 5B of the Central Excise Act, 1944. However, if the assessee has not paid duty and the process undertaken by him indisputably does not amount to manufacture, the Department has to inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit on inputs.

Section 5B of the Central Excise Act, 1944 provides that the Central Government may order for non-reversal of the credit allowed to the assessee by issuing a notification. The notification may specify the conditions subject to which such non-reversal of credit may be ordered. Further, the Central Government may also order for non-reversal of credit, if any, taken by the buyer of the said product in such notification.

It may be noted that such non-reversal of the credit shall not be ordered if the assessee has preferred a claim for refund of excise duty paid by him.