Cenvat credit reversal does not apply to gelatin waste destroyed within the factory after manufacture.

Cenvat credit reversal under rule 3(5) applies only when inputs or capital goods on which credit has been taken are removed as such from the factory. Gelatin mass waste generated during manufacture and destroyed within the factory was not removed in the same condition as the inputs, so the rule did not apply. Even if the waste was excisable, that did not require reversal of credit already taken on inputs consumed in the manufacturing process. The duty demand was unsustainable, and no reversal of credit was payable on the destroyed waste.

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Issues: Whether Cenvat credit was required to be reversed, or excise duty paid, in respect of gelatin mass waste generated during manufacture and destroyed within the factory, and whether rule 3(5) applied to such waste.

Analysis: The liability under rule 3(5) arises only when inputs or capital goods on which credit has been taken are removed as such from the factory. The waste in question was not removed in the same condition in which the inputs were brought in, but was generated during the manufacturing process as a waste or by-product and was destroyed within the factory premises. On those facts, the provision governing removal as such had no application. Even assuming the waste was excisable, that did not justify insisting on reversal of credit on inputs already consumed in manufacture. The demand was therefore unsustainable.

Conclusion: Cenvat credit was not required to be reversed and no duty demand survived in respect of the destroyed gelatin mass waste.

Final Conclusion: The appeal failed, and the assessee's position that no reversal of credit was payable on the destroyed waste was upheld.

Ratio Decidendi: Cenvat credit reversal under rule 3(5) is attracted only when inputs are removed as such from the factory, not when waste or by-product generated in manufacture is destroyed within the factory premises.

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