Cenvat credit reversal for exported capital goods was rejected where the exercise was treated as revenue neutral.

Cenvat credit on capital goods exported as such was held not liable to reversal on the facts of the case under Rule 3(4) of the Cenvat Credit Rules, 2002, because the departmental circular relied on referred to the erstwhile Central Excise Rules, 1944 and no corresponding reversal requirement was shown under the earlier regime. The Tribunal also noted that, if the capital goods had been exported on payment equal to the credit availed, the amount would have been refundable by rebate, making the situation revenue neutral. The disallowance of credit and the equal penalty were set aside.

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Issues: Whether Cenvat credit taken on capital goods subsequently exported as such was liable to reversal under Rule 3(4) of the Cenvat Credit Rules, 2002, along with equal penalty.

Analysis: The credit had been disallowed on the footing that capital goods removed as such attracted reversal of the credit availed. The Tribunal held that the appellants were not required to pay back the credit in the facts of the case, noting the departmental circular referred to the erstwhile Central Excise Rules, 1944 and the absence of a corresponding requirement under the earlier regime. It further noted that, even if the capital goods had been exported on payment equal to the credit availed, the amount would have been available by way of rebate, making the exercise revenue neutral.

Conclusion: The disallowance of Cenvat credit and the penalty were set aside, and the appeal was allowed in favour of the assessee.

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