Depreciation-based valuation applies to used capital goods removed from factory under Cenvat Credit Rules.

The expression "as such" in Rule 3(4)(c) of the Cenvat Credit Rules, 2004 was read to include used capital goods removed from a factory, so the credit reversal mechanism had to be applied on removal. Reading the rule with the later amendment to Rule 3(5), the Board's valuation circular, and the principle that depreciation applies where capital goods are cleared after use, the Court accepted depreciation-based valuation for such removals and directed that credit reversal be worked out accordingly. The contrary Larger Bench view was not followed because it had not fully considered the later proviso and the depreciation mechanism.

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Issues: Whether the expression "as such" in Rule 3(4)(c) of the Cenvat Credit Rules, 2004 covers used capital goods removed from the factory and whether, on such removal, the assessee is required to reverse the Cenvat credit originally taken.

Analysis: The provision requiring payment of an amount equal to the credit availed applies to removal of inputs or capital goods as such, and the Court read this together with the later amendment to Rule 3(5) of the Cenvat Credit Rules, 2004, the Board's circular on valuation at the time of clearance, and the principle that depreciation is allowable when capital goods are removed after use. On that combined reading, capital goods disposed of after being put to use may be assessed on their depreciated value, and the credit reversal is to be worked out accordingly. The contrary view in the Larger Bench decision was not accepted because the effect of the later proviso and the depreciation mechanism had not been fully considered.

Conclusion: The expression "as such" was held to include used capital goods, and the assessee was held entitled to depreciation-based valuation on removal. The appeal was dismissed and the Tribunal's remand for re-determination after allowing depreciation was sustained.

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