Cenvat credit on packing value and scrap clearance of used capital goods do not trigger reversal

Cenvat credit was held admissible on the duty paid on the container used to import capital goods because the container formed part of the assessable value and duty had been paid on that combined value. Used capital goods cleared after about eight years and sold as scrap were not treated as removed "as such"; the reversal rule applies only to removal of capital goods in their original form, not to worn-out machinery discarded after prolonged use. On both issues, the departmental objection failed and credit relief was sustained.

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Issues: (i) Whether Cenvat credit of the duty paid on the container used for transporting imported capital goods was admissible. (ii) Whether used capital goods cleared after long use as scrap could be treated as removal "as such" so as to require reversal of Cenvat credit.

Issue (i): Whether Cenvat credit of the duty paid on the container used for transporting imported capital goods was admissible.

Analysis: The imported item was the capital goods themselves, namely the forging press, and the container was only the packing medium by which the goods could be brought into the country. The value of the container had been included in the assessable value for customs purposes, and duty had been discharged on that combined value. Since the packing cost formed part of the imported goods' value and the duty had actually been paid on that value, the duty attributable to the container was available as Cenvat credit.

Conclusion: Cenvat credit on the container was admissible and the department's objection failed.

Issue (ii): Whether used capital goods cleared after long use as scrap could be treated as removal "as such" so as to require reversal of Cenvat credit.

Analysis: The two lathe machines had been used for about eight years and had outlived their utility before being sold as scrap on a per-kilo basis. The rule requiring reversal applies where capital goods are removed as such, not where worn-out machinery is discarded after use. On the settled view that used capital goods cleared after use are not equivalent to removal as such, the credit already taken was not required to be reversed.

Conclusion: The machines were not removed as such and reversal of credit was not required.

Final Conclusion: The departmental challenge failed on both counts and the order granting credit relief was sustained in full.

Ratio Decidendi: Where duty has been paid on the value of packing material that forms part of imported capital goods, Cenvat credit is admissible; and capital goods cleared only after prolonged use as scrap are not treated as removed as such for purposes of credit reversal.

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