Cenvat credit reversal applies only to capital goods removed unused, not to long-used machinery later cleared as scrap.

Rule 3(4) of the Cenvat Credit Rules, 2002 did not require reversal of credit originally taken on capital goods that had been used in the factory for several years before being cleared as old, damaged or scrapped machinery on payment of duty on reduced value. The expression "as such" was confined to capital goods removed without being put to use, so subsequent clearance of used capital goods as scrap did not trigger reversal of the original credit. Requiring reversal in that situation would defeat the object of allowing Modvat/Cenvat credit on capital goods. The demand for differential duty was therefore unsustainable.

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Issues: Whether Rule 3(4) of the Cenvat Credit Rules, 2002 required reversal of the credit originally availed on capital goods when such capital goods, after long use, were cleared as old, used and scrapped machines on payment of duty on their reduced value.

Analysis: The expression "as such" in Rule 3(4) refers to capital goods removed without being put to use. Where the capital goods had admittedly been used in the factory for several years before clearance, the rule did not require reversal of the original credit merely because the goods were later sold as old, damaged or unserviceable. Requiring reversal in such a situation would produce an absurd result and would defeat the object of allowing Modvat/Cenvat credit on capital goods.

Conclusion: The assessee was not required to reverse the credit originally availed; the demand for differential amount was unsustainable and the appeal succeeded.

Ratio Decidendi: Credit reversal under Rule 3(4) is attracted only when capital goods are removed "as such", meaning without use, and not when used capital goods are subsequently cleared as scrap or obsolete machinery.

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