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of <h1>Depreciated value basis for Cenvat credit reversal on removal of used capital goods under Rule 3(4) and 3(5) proviso</h1> HC held that when used capital goods are removed from the factory, the assessee need not reverse the entire Cenvat credit originally taken. Instead, ... Cenvat credit - Capital goods - expression 'as such' in Rule 3(4)(c) - cover used as well as unused capital goods or not - Whether the assessee is required to reverse credit equivalent to credit taken when used capital goods are removed from the factory or not? - HELD THAT:- On a conjoint reading of Rule 3(4) with the provision added to Rule 3(5) with effect from 13-11-2007, the Board’s Circular dated 1-7-2002 along with Board’s letter dated 26-5-1993, it is quite clear that the inputs or capital goods when disposed of after putting it into some use over a period of time, then the assessee would be entitled to reverse whatever Cenvat Credit availed on the value to be assessed on the date of such subsequent sale as capital goods. Such a conclusion by relying upon the above referred to Board’s Circular and the letter as well as the addition of proviso to Rule 3(5) with effect from 13-11-2007, is the manner in which the expression ‘as such’ used in Rule 3(4) can be interpreted. Consequently, the interpretation put in the order of the Principal Bench reported in Raghav Alloys [2009 (4) TMI 184 - CESTAT, NEW DELHI] merits acceptance. The order of the Tribunal impugned in this appeal applying the said ratio of the Principal Bench is, therefore, perfectly justified. As far as the order of the Larger Bench of the Tribunal in Modernova Plastyles Pvt. Ltd. [2008 (10) TMI 51 - CESTAT, MUMBAI] is concerned, we find that though a reference has been made to the addition of the proviso to Rule 3(5) with effect from 13-11-2007, the relevancy of the said addition providing for making an assessment in a depreciated manner i.e. reducing the Cenvat credit at the rate of 2.5% for each quarter of a year from the date of taking Cenvat credit has not been examined. Thus, the order of the Tribunal impugned in this appeal cannot be found fault with. Hence, the order of the Tribunal in remanding back to the original authority for re-determination of the amount after allowing depreciation - The appeal fails and the same is dismissed. Issues:1. Interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002.2. Requirement to reverse credit when used capital goods are removed from the factory.Issue 1: Interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002:The case involved the appellant, the Commissioner of Central Excise, questioning the interpretation of the term 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002. The appellant contended that the expression should only refer to the value at the time of initial procurement and not allow for a depreciated value for substantially used and disposed of capital goods. However, the Court disagreed with this interpretation. The Court referenced a Board's Circular and a provision added to Rule 3(5) of the 2004 Rules, which indicated that when capital goods are disposed of after being used, the manufacturer should pay an amount equal to the Cenvat credit taken, reduced by a specified percentage for each quarter of a year from the date of taking the credit. The Court concluded that the assessee is entitled to reverse the Cenvat credit availed based on the value assessed at the subsequent sale of the capital goods. The Court upheld the Tribunal's decision, which aligned with this interpretation.Issue 2: Requirement to reverse credit when used capital goods are removed from the factory:The case also addressed the issue of whether the assessee is required to reverse credit equivalent to the credit taken when used capital goods are removed from the factory. The Court, after examining the relevant provisions and circulars, determined that when inputs or capital goods are disposed of after being used over time, the assessee should reverse the Cenvat credit availed based on the value assessed at the subsequent sale of the capital goods. The Court found that the Tribunal's decision to remand the matter back to the original authority for re-determination of the demand amount after allowing depreciation was justified. Consequently, the Court dismissed the appeal and upheld the Tribunal's decision, emphasizing that the questions of law raised had already been correctly addressed by the Tribunal.In conclusion, the High Court of Madras clarified the interpretation of the expression 'as such' in Rule 3(4)(c) of the Cenvat Credit Rules, 2002, and affirmed the requirement for the assessee to reverse credit when used capital goods are removed from the factory based on the subsequent sale value. The Court's decision aligned with the provisions of the Rules and relevant circulars, upholding the Tribunal's decision and dismissing the appeal brought by the Commissioner of Central Excise.
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