Cenvat credit on repair inputs used within the factory is not treated as removal as such for duty valuation.

Rule 3(4) of the Cenvat Credit Rules, 2001 applies only when inputs or capital goods on which credit has been taken are removed as such from the factory, with duty then payable on the value determined under the excise valuation provisions. Where transformer oil is consumed within the factory in repairing old and damaged transformers, separate records are maintained for repair use, and proportionate credit is reversed, the oil is not treated as removed as such. On those facts, Rule 3(4) was inapplicable and duty could not be demanded on the basis of the transaction value.

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Issues: Whether Rule 3(4) of the Cenvat Credit Rules, 2001 applied to transformer oil used within the factory in repairing old and damaged transformers, and whether duty could be demanded on the basis of transaction value.

Analysis: The transformer oil was not removed from the factory as such. Separate records were maintained for oil used in manufacturing and in repairing work as required under Rule 6 of the Cenvat Credit Rules, 2001, and proportionate credit had already been reversed on the quantity used for repairs. Rule 3(4) applies only where inputs or capital goods on which credit has been taken are removed as such from the factory, with duty payable on the value determined under Section 4 or Section 4A of the Central Excise Act, 1944. On the admitted facts, the condition for invoking Rule 3(4) was absent.

Conclusion: Rule 3(4) was inapplicable, and the duty demand based on the transaction value of UPSEB was not sustainable.

Ratio Decidendi: Credit reversal on inputs consumed in repair work within the factory, where no removal of inputs as such occurs, cannot be treated as removal attracting Rule 3(4) valuation.

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