Tribunal clarifies Cenvat credit rule on used capital goods removal

The Tribunal held that the appellant was not required to reverse the entire Cenvat credit on the removal of used capital goods, clarifying that Rule 3(5) of the Cenvat Credit Rules applies to the removal of capital goods 'as such'. Precedents were cited to support this interpretation, and it was established that the requirement to reverse the entire credit is only applicable in cases of removal of capital goods 'as such'. The Tribunal directed the calculation of the depreciated value of the capital goods based on a prescribed method and remanded the matter for further determination, ultimately disposing of the appeal without imposing any penalties.

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Issues:
1. Reversal of Cenvat credit on removal of used capital goods.
2. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004.
3. Application of depreciated value for used capital goods.

Analysis:

The appellant, engaged in manufacturing fuel injection pumps, transferred used capital goods to a sister unit after sufficient use. The Revenue contended that the appellant must reverse the entire Cenvat credit availed on the capital goods cleared. A Show Cause Notice was issued, leading to confirmation of a demand and imposition of a penalty by the original adjudicating authority, which was upheld by the Commissioner (Appeals).

The central issue in the appeal was whether the appellant is required to reverse the entire Cenvat credit on removal of used capital goods. The Tribunal clarified that Rule 3(5) of Cenvat Credit Rules applies to removal of capital goods as such, not used capital goods. Citing precedents like the Delhi High Court's decision in Harsh International (Khaini) Pvt. Ltd. Vs. CCE and the Larger Bench decision in CCE Hyderabad Vs. Novodhaya Plastic Industries Ltd., it was established that the requirement of reversing entire credit is applicable only when capital goods are removed 'as such'.

It was held that for capital goods cleared after continuous use, the depreciated value should be calculated as per the board's circular prescribing deduction of 2.5% of credit for each quarter of use. The Tribunal set aside the impugned order and remanded the matter to determine the depreciated value of the capital goods, as it was not clear how the appellant arrived at this value. However, no penalty was imposed in this case, and the appeal was disposed of accordingly.

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