Depreciated value for used capital goods governs Cenvat clearances, while penalty fails absent suppression.

Used capital goods cleared after being put to use under the Cenvat credit regime are assessable on depreciated value, not merely on invoice or transaction value, because removal after use is governed by the valuation principle applied to capital goods on which credit has been taken. On that basis, duty and interest were restored in favour of Revenue. Separately, penalty was not sustainable because the record did not establish suppression of facts or equivalent culpable conduct, and the transfer to a sister unit did not justify penal action on these facts. The result was that the duty demand and interest were upheld, while the penalty was set aside.

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Issues: (i) Whether used capital goods cleared to a sister unit after being put to use were liable to duty on the depreciated value under the Cenvat credit regime; (ii) whether penalty was sustainable in the facts of the case.

Issue (i): Whether used capital goods cleared to a sister unit after being put to use were liable to duty on the depreciated value under the Cenvat credit regime.

Analysis: The dispute turned on the meaning of capital goods removed "as such" and the effect of the Board's circulars and the valuation scheme. The settled view, as followed from the Madras High Court and the Larger Bench, is that once capital goods on which credit has been taken are removed after use, the clearance is to be assessed by reference to the depreciated value and not merely on the invoice or transaction value. The expression "as such" was read in the light of the circular dated 01.07.2002 and the corresponding CBEC letter allowing depreciation for used capital goods. On that basis, the respondent was not entitled to retain the benefit of assessment at the lower transaction value.

Conclusion: The clearance of used capital goods was liable to duty on the depreciated value and the demand and interest were rightly restored in favour of Revenue.

Issue (ii): Whether penalty was sustainable in the facts of the case.

Analysis: The penalty was examined separately from the duty demand. The record did not disclose valid grounds establishing suppression of facts or comparable culpable conduct. The goods were transferred to a sister unit, and the lower appellate authority had already interfered with penalty on the basis of revenue neutrality. In these circumstances, the penal consequence was not warranted.

Conclusion: The penalty was not sustainable and was waived in favour of the respondent.

Final Conclusion: The duty demand and interest were upheld, but the penalty was set aside, resulting in a partial allowance of the Revenue's appeal.

Ratio Decidendi: Used capital goods cleared after being put to use are to be assessed on depreciated value under the Cenvat credit regime, while penalty cannot be sustained absent a valid foundation of suppression or equivalent culpability.

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