Used capital goods and limitation under Cenvat rules defeated the demand where removals were disclosed in records.

Used capital goods removed from a factory were held not to fall within the rule for capital goods removed as such, so duty or Cenvat credit reversal could not be demanded on that basis. The removals involved used machinery, and the value adopted was depreciated or transaction value, which did not attract the rule as applied by the Revenue. The demand was also unsustainable because the show cause notice was issued beyond the normal limitation period, with the removals already reflected in statutory returns and records. On these grounds, the demand, penalty and interest were set aside.

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Issues: (i) Whether used capital goods removed from the factory were liable to duty or reversal of credit under the relevant Cenvat provisions. (ii) Whether the demand could be sustained when the show cause notice was issued beyond the normal period.

Issue (i): Whether used capital goods removed from the factory were liable to duty or reversal of credit under the relevant Cenvat provisions.

Analysis: The applicable rule during the first clearance required payment of duty on capital goods removed as such on the value determined under Section 4 or Section 4A of the Act, while the later rule required reversal of the credit availed. The expression capital goods removed as such was construed as not covering used capital goods. The removals in question were of used machinery, and the appellant had either adopted depreciated value or transaction value. On that construction, the demand based on treating the removals as covered by the rule for capital goods removed as such was unsustainable.

Conclusion: The issue is decided in favour of the appellant and against the Revenue.

Issue (ii): Whether the demand could be sustained when the show cause notice was issued beyond the normal period.

Analysis: The removals had been reflected in the statutory returns and allied records, and no sufficient basis was shown for invoking the longer limitation period. In those circumstances, the notice issued much beyond the normal period could not support the proceedings.

Conclusion: The issue is decided in favour of the appellant and against the Revenue.

Final Conclusion: The demand, penalty and interest were set aside and the appeal succeeded.

Ratio Decidendi: Used capital goods are not covered by the rule applicable to capital goods removed as such, and where the demand is also time-barred, the proceedings cannot be sustained.

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