Cenvat credit reversal under Rule 3(5) applies only where credit was availed and goods are removed as such.

Rule 3(5) of the Cenvat Credit Rules, 2004 applies only when the assessee has availed Cenvat credit on inputs or capital goods and removes those goods as such from its factory or premises. On the facts, the assessee had not taken credit on the Nitration Plant, and a mere possibility that a previous owner may have done so was insufficient to impose liability. Because the factory was purchased as a whole, there was no removal in the sense contemplated by the rule. The demand, interest, and penalty were therefore set aside.

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Issues: Whether rule 3(5) of the Cenvat Credit Rules, 2004 was attracted so as to sustain the demand, interest, and penalty in respect of the Nitration Plant purchased along with the factory.

Analysis: The record showed that the assessees had not taken Cenvat credit on the goods in question. The condition in rule 3(5) applies where inputs or capital goods on which credit has been availed are removed as such, and that requirement was not satisfied. A mere possibility that the previous owner may have taken credit was insufficient to fasten liability on the assessees. Since the factory was purchased as a whole, there was also no removal from the assessees' factory in the sense contemplated by the rule.

Conclusion: Rule 3(5) was not applicable, and the demand, interest, and penalty were set aside in favour of the assessee.

Ratio Decidendi: Liability under rule 3(5) arises only when the assessee has availed Cenvat credit on the goods and there is removal of those goods as such from the assessee's factory or premises.

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