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Issues: Whether capital goods on which Cenvat credit had been taken, when removed to another unit, required reversal of the entire credit under Rule 3(4) of the Cenvat Credit Rules, 2002, and whether duty could be discharged only on the depreciated value of such goods.
Analysis: Rule 3(4) made it clear that where inputs or capital goods on which credit had been taken were removed as such from the factory, the credit availed in respect of such goods became payable. On that legal position, the credit had to be reversed in full. Payment of duty on the depreciated value of the capital goods was not an acceptable substitute for reversal of the credit. The plea that the goods had been used before removal did not alter the position where the goods were removed as such within the meaning of the rule.
Conclusion: The demand for reversal of credit was sustained and the order of the lower appellate authority was set aside. The appeal succeeded on the tax issue, while the penalty was set aside and interest on the differential duty was held payable in accordance with law.
Final Conclusion: The legal effect of the decision is that removal of capital goods on which credit had been availed attracted full reversal of credit under the relevant Cenvat rule, though penalty was not sustained.
Ratio Decidendi: Where capital goods on which Cenvat credit has been taken are removed as such, the entire credit must be reversed and duty on depreciated value cannot replace such reversal.
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