CENVAT credit on used capital goods need not be reversed when cleared after prior use on transaction value.

Used capital goods cleared from a factory after prior use are not treated as removed "as such" under Rule 3(4) of the CENVAT Credit Rules, 2002, or the corresponding Rule 3(5) of the 2004 Rules. On that basis, reversal of the original CENVAT credit is not required where the goods were first used in manufacture and then cleared on payment of duty on their transaction value. Duty paid on the depreciated value of the used capital goods was therefore considered legally sufficient, and a differential duty demand based on credit reversal was unsustainable.

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Issues: Whether CENVAT credit taken on capital goods is liable to be reversed when the capital goods are removed from the factory after use, and whether duty paid on the depreciated transaction value of such used capital goods is in accordance with law.

Analysis: Rule 3(4) of the CENVAT Credit Rules, 2002, and the corresponding Rule 3(5) of the CENVAT Credit Rules, 2004, apply to removal of capital goods as such, meaning removal without having been used. Where capital goods on which credit was taken have been used in the manufacture of excisable goods and are then cleared from the factory, the removal is not a removal as such. In that situation, the appropriate course is payment of duty on the transaction value of the used capital goods. The facts showed that the capital goods were used over a period of time and then cleared on payment of duty on depreciated value, which was not disputed in the show-cause notice.

Conclusion: Reversal of the original CENVAT credit was not required, and the demand of differential duty was unsustainable. The duty paid on the used capital goods was held to be in accordance with law, and the assessee succeeded.

Final Conclusion: The demand based on reversal of CENVAT credit was set aside, and the assessee obtained complete relief in this appeal.

Ratio Decidendi: Used capital goods cleared after prior use are not removed as such for the purpose of Rule 3(4) of the CENVAT Credit Rules, 2002, or the corresponding provision in the 2004 Rules, and duty paid on their transaction value is sufficient without reversal of the original credit.

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