Proportionate CENVAT reversal governs removal of used capital goods; full credit recovery requires fresh reconsideration.

On removal of old and used capital goods, the liability to reverse CENVAT credit had to be tested against the binding Larger Bench ruling on proportionate reversal, which applied the 2.5% per quarter formula from the date of availment of credit. An order proceeding on the basis that the entire credit was recoverable under Rule 3(5) of the CENVAT Credit Rules, 2004 could not stand without reconsideration in light of that precedent. The matter was therefore remanded for fresh adjudication by the original authority after applying the correct legal basis and granting the assessee a hearing.

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Issues: Whether, on removal of old and used capital goods, the assessee was required to reverse the entire CENVAT credit originally taken or whether the matter had to be decided in the light of the prevailing Larger Bench ruling on proportionate reversal.

Analysis: The Tribunal noted that the controversy was covered by the Larger Bench decision which, following the High Court ruling, held that reversal was to be worked out at 2.5% for each quarter from the date of availment of credit. Since the adjudicating authority had proceeded on the basis that the entire credit was recoverable under Rule 3(5) of the CENVAT Credit Rules, 2004, the issue required reconsideration with reference to that binding precedent. The proper course was to have the matter examined afresh by the original authority after applying the Larger Bench decision and after granting a hearing to the assessee.

Conclusion: The demand based on reversal of the entire credit was not finally sustained, and the matter was remanded for de novo decision in accordance with the Larger Bench ruling.

Final Conclusion: The assessee obtained a partial relief because the impugned orders were set aside and the dispute was sent back for fresh adjudication on the correct legal basis.

Ratio Decidendi: Removal of used capital goods must be examined with reference to the binding precedent on proportionate CENVAT credit reversal, and a contrary order requires reconsideration on remand.

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