Used capital goods are not cleared "as such"; Cenvat credit reversal and extended limitation were both rejected.

Capital goods cleared after substantial use were not removed "as such" under Rule 3(4) of the Cenvat Credit Rules, 2002, so reversal of Cenvat credit was not required. The machine had been used for several years and sold as used goods at transaction value, distinguishing precedents involving unused capital goods. The demand was also time-barred because the clearance was disclosed in ER-1 returns and noticed during audit, showing no suppression of facts to justify the extended limitation period. Demand, interest, and penalty were therefore unsustainable.

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Issues: (i) Whether the appellant was required to reverse Cenvat credit under Rule 3(4) of the Cenvat Credit Rules, 2002 on clearance of capital goods after long use as used capital goods; (ii) Whether the demand was barred by limitation in the absence of suppression of facts.

Issue (i): Whether the appellant was required to reverse Cenvat credit under Rule 3(4) of the Cenvat Credit Rules, 2002 on clearance of capital goods after long use as used capital goods.

Analysis: The expression "as such" was held to refer to capital goods removed in their original form without being used. The machine had been used for several years and was cleared after wear and tear at its transaction value. The authorities relied on decisions dealing with unused capital goods, but those did not govern a case where the capital goods had been put to use and were sold as used goods. The reasoning in prior decisions on used capital goods was followed, and the Larger Bench ruling cited by the Revenue was distinguished as arising in a different statutory setting.

Conclusion: The appellant was not required to reverse the Cenvat credit on the facts of the case.

Issue (ii): Whether the demand was barred by limitation in the absence of suppression of facts.

Analysis: The clearance of the capital goods was reflected in the ER-1 returns, and the issue was also noticed during audit much earlier. The department therefore had knowledge of the material facts, and the record did not support suppression so as to justify invocation of the extended period. The notice was issued beyond the permissible period after the department had become aware of the facts.

Conclusion: The demand was time-barred.

Final Conclusion: The appellant succeeded both on merits and on limitation, and the demand, interest, and penalty could not be sustained.

Ratio Decidendi: For the purpose of Rule 3(4) of the Cenvat Credit Rules, 2002, capital goods cleared after substantial use are not cleared "as such", and a demand cannot be sustained by invoking the extended period where the department was already aware of the clearance from statutory returns and audit.

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