Cenvat credit on used capital goods turned on actual use, not the scrap label attached at transfer.

Cenvat credit was held admissible on used capital goods cleared as scrap where the receiving unit actually used them as capital goods. The fact that the goods were described as scrap at the time of transfer did not defeat credit, because entitlement depended on their actual use, not the transfer label. Duty had been paid on clearance under Rule 3(5A) of the Cenvat Credit Rules, 2004, and the prior Tribunal ruling was applied on principle despite arising under the earlier Modvat regime. The demand, interest, and penalties were not sustainable, and the order denying credit was set aside.

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Issues: Whether Cenvat credit was admissible on duty paid when used capital goods were cleared as scrap but were received and used as capital goods by the appellant.

Analysis: The duty on the clearance of used capital goods as scrap had been paid under Rule 3(5A) of the Cenvat Credit Rules, 2004. The dispute was only whether the receiving unit could take credit on the ground that the goods were described as scrap at the time of receipt. The deciding factor was the actual manner in which the goods were used. Since the use of the goods as capital goods was not in dispute, the mere description of the goods as scrap did not bar credit. The prior Tribunal ruling relied upon was held to apply on principle, even though it arose in the context of the earlier Modvat regime.

Conclusion: Cenvat credit was admissible and the demand, interest, and penalties could not be sustained.

Final Conclusion: The order denying credit was set aside and the appeal succeeded.

Ratio Decidendi: Entitlement to credit on received goods depends on their actual use as capital goods, and not merely on the label of scrap attached to them at the time of transfer.

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