Used capital goods are not removed "as such"; full Cenvat credit reversal was held unwarranted on clearance.

Rule 3(5) of the Cenvat Credit Rules, 2004 does not apply when capital goods are removed after substantial use in manufacture, because such clearance is not removal "as such". The Tribunal noted that the goods had been used for a significant period and duty had been paid on the transaction value at clearance. Relying on contrary tribunal views and High Court decisions, it held that reversal of the entire Cenvat credit originally taken was not warranted. The Revenue's demand for full credit reversal was therefore rejected, and the assessee's position was upheld.

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Issues: Whether Rule 3(5) of the Cenvat Credit Rules, 2004 applied to capital goods removed after use so as to require reversal of the entire Cenvat credit taken at the time of receipt.

Analysis: The dispute turned on whether removal of capital goods after they had been used in manufacture could be treated as clearance of goods "as such". The Tribunal noted that the appellant had used the capital goods for a substantial period before removal and had paid duty on the transaction value at the time of clearance. It also took note of contrary tribunal views and decisions of different High Courts holding that Rule 3(5) did not apply to such removal of used capital goods. In view of that legal position, the Revenue's demand for reversal of the entire credit was not sustainable.

Conclusion: Rule 3(5) was held inapplicable to the removal of used capital goods after use, and the demand for reversal of credit was rejected in favour of the assessee.

Ratio Decidendi: Removal of capital goods after they have been put to use is not removal "as such" within the meaning of Rule 3(5) of the Cenvat Credit Rules, 2004, and does not automatically require reversal of the entire credit originally taken.

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