Cenvat credit on reconditioned capital goods was upheld where used cylinders were sent for job work and returned duty-paid.

Cenvat credit was treated as admissible where used printing cylinders were sent for reconditioning under a job-work arrangement and received back after duty-paid manufacture by the job worker. Rule 3(5) of the Cenvat Credit Rules, 2004 was held inapplicable because the cylinders were not removed as such, but after use as capital goods. The earlier credit reversal was therefore not required on these facts. The Revenue's contrary reliance was distinguished as dealing with capital goods sent as such. The arrangement was also noted as revenue neutral, since any reversed credit would have been available to the job worker for duty payment.

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Issues: Whether Cenvat credit was admissible on duty paid by the job worker on reconditioned printing cylinders returned for further use, and whether the original reversal of credit was required when the worn-out cylinders were sent for reconditioning.

Analysis: The printing cylinders were not removed as such, but only after use as capital goods. In that situation, Rule 3(5) of the Cenvat Credit Rules, 2004, governing removal of capital goods as such, was held inapplicable. The cylinders were sent for engraving, rechroming and reengraving under the job-work arrangement contemplated by Rule 4(5)(a) of the Cenvat Credit Rules, 2004. The job worker manufactured the reconditioned cylinders, paid excise duty, and the goods were received back for further use. The credit was therefore treated as properly available to the respondent. The decision relied upon by the Revenue was distinguished because it concerned capital goods sent as such. The arrangement was also regarded as revenue neutral because any reversed credit would have been available to the job worker for duty payment.

Conclusion: Cenvat credit was held to be admissible, and no prior reversal was required on the facts.

Ratio Decidendi: Where used capital goods are sent for reconditioning under job work and are received back after duty-paid manufacture by the job worker, the transaction is not removal of capital goods as such and credit of the duty paid on the returned goods is permissible.

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