Cenvat credit reversal on partially processed inputs must be limited to the original input credit, not processed value.

Rule 3(3)(b) of the Cenvat Credit Rules, 2004 permits reversal or payment of an amount equal only to the credit originally taken on inputs removed as such or after partial processing. On removal of sheet metal parts after partial processing and E.D. coating, the operative question was whether duty could be demanded on the processed value or whether only the input credit had to be reversed. The provision was applied to the Cenvat scheme itself, not as a case of manufacture of a new product. As no credit had been taken on the coating materials, reversal of the credit on the inputs alone satisfied the rule, and the earlier view was treated as inapplicable after amendment.

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Issues: Whether, on removal of sheet metal parts after partial processing and E.D. coating, the appellant was required to reverse only the credit originally taken on the inputs or to discharge duty with reference to the value of the processed sheets.

Analysis: Rule 3(3)(b) of the Cenvat Credit Rules, 2004 permits utilization of credit for payment of an amount equal to the credit taken on inputs if such inputs are removed as such or after being partially processed. The dispute concerned operation of the Cenvat credit scheme, not manufacture of a new product. As only the credit taken on the sheet metal parts was attributable to the removal and no credit had been taken on the coating materials, reversal of the credit taken on the inputs satisfied the rule. The earlier view was held inapplicable because of the amended provision.

Conclusion: The appellant was required to reverse only the credit taken on the inputs removed after partial processing, and no demand could be sustained on the value of the processed sheets.

Ratio Decidendi: When inputs are removed as such or after partial processing, Rule 3(3)(b) requires reversal only of the credit originally taken on those inputs, and duty cannot be computed on the enhanced value of the processed goods in the absence of manufacture.

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