Credit reversal on used capital goods failed where clearance was not removal "as such" and no further duty was payable.

Removal of old and used capital goods after years of use was treated as not being removal "as such", so no further credit reversal or duty could be sustained on that basis. For the earlier period, Rule 57-S of the Central Excise Rules, 1944 governed the treatment of credit on capital goods; for the later period, there was no specific authority to demand duty on clearance of used capital goods before insertion of Rule 3(5A) of the Cenvat Credit Rules, 2004. The amount already paid on transaction value was accepted as sufficient, and the demand for additional duty and the accompanying penalty were held unsustainable.

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Issues: Whether credit reversal or duty was payable on removal of old and used capital goods and whether the demand and penalty could be sustained.

Analysis: The capital goods were taken credit of and used in manufacture for several years before being cleared as old and used machinery. The removal was held not to be a removal "as such". The applicable earlier regime under Rule 57-S of the Central Excise Rules, 1944 governed the credit reversal, and for the later period there was no specific authority to demand duty on clearance of used capital goods prior to the insertion of Rule 3(5A) of the Cenvat Credit Rules, 2004. On the facts, the amount already paid on transaction value was accepted as sufficient and the demand of further duty was held unsustainable.

Conclusion: The demand for duty reversal on removal of used capital goods was not sustainable and the penalty also failed.

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