Cenvat credit reversal on used capital goods not required where machinery was not removed as such from the factory.

Rule 3(5) of the Cenvat Credit Rules, 2004 applies only when inputs or capital goods are removed as such from the factory. Used machinery that had remained in the factory for more than a year before its initial sale was not treated as removed as such merely because it was later returned after the aborted sale. Its eventual disposal was linked to its original entry into the factory, so the reversal of credit was not warranted. Duty paid on the final sale value was proper.

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Issues: Whether Rule 3(5) of the Cenvat Credit Rules, 2004 required reversal of credit on capital goods that had been used in the factory and were later sold, and whether duty paid on the final sale value was proper.

Analysis: Rule 3(5) applies where inputs or capital goods on which credit has been taken are removed as such from the factory. The machines in question had been used in the factory for more than a year before their initial sale, and their return after the aborted sale was only connected with that earlier transaction. Their eventual disposal had to be linked to their original entry into the factory, not to the later return. On that basis, the machinery was not removed as such, and the principle governing sale of used capital goods applied.

Conclusion: The demand for reversal of credit was not sustainable, and duty paid on the final sale value was held to be proper.

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