Cenvat credit on used capital goods: no full reversal on clearance after use, with duty based on depreciated value.

Capital goods cleared after use were treated as not removed "as such" under Rule 3(4) of the Cenvat Credit Rules, 2002, so full reversal of the credit originally taken was not required; duty was to be worked out on the depreciated value in line with the circulars relied on. Capital goods transferred along with the factory, without physical removal, were treated as a change in ownership rather than a removal from the factory, so no full credit reversal arose on that basis. Inputs used and later cleared after deterioration were subject to duty on the reduced value, and that duty computation was upheld as correct.

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Issues: Whether the assessee was required to reverse the entire Modvat/Cenvat credit taken on capital goods when the goods were cleared after use, and whether duty was payable on capital goods and inputs cleared in the manner recorded in the order.

Analysis: The appellate authority had held that capital goods used in the factory for 2-3 years and then cleared on payment of duty were not removed "as such" within the meaning of Rule 3(4) of the Cenvat Credit Rules, 2002. It also relied on the Board's circulars to hold that duty on such capital goods was to be determined after allowing depreciation, and that the rule did not require duty equal to the entire credit originally availed. As to the capital goods that were not physically removed but were transferred along with the factory, the order treated the transaction as only a change of ownership and not a removal from the factory. In respect of inputs that had been used and later cleared after deterioration, the order held that the duty paid on the reduced value was correct.

Conclusion: The assessee was not required to reverse the entire credit, and the duty paid on the cleared capital goods and inputs was upheld as correct.

Ratio Decidendi: Where capital goods are cleared after use and are not removed "as such", Rule 3(4) does not mandate reversal of the full credit originally taken; duty is determined on the value after permissible depreciation, and a mere change of ownership without physical removal does not attract such reversal.

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