CENVAT credit reversal on removal of inputs as such is sufficient; deeming manufacture duty demand is unsustainable.

When inputs on which CENVAT credit has been taken are removed as such from the factory, reversal of the credit availed on receipt satisfies the statutory requirement under the relevant credit rules. A further duty demand on the basis that the inputs are deemed to have been manufactured in the factory is inconsistent with that interpretation and is unsustainable. The Tribunal therefore set aside the impugned order and allowed the appeal in favour of the assessee.

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Issues: Whether, on removal of inputs as such from the factory, reversal of the CENVAT credit already availed is sufficient or whether the assessee is liable to pay duty on the basis that the inputs are deemed to have been manufactured in the factory.

Analysis: The applicable rule position was examined with reference to Rule 57AB and the later Rule 3(5) of the CENVAT Credit Rules, under which inputs or capital goods removed as such attract payment of an amount equal to the credit taken. The reasoning followed the Tribunal's earlier view that, where inputs are cleared as such, reversal of the credit availed on receipt is sufficient. The demand based on treating the inputs as if they had been manufactured in the factory was found inconsistent with that settled interpretation.

Conclusion: Reversal of credit was held to be sufficient, and the duty demand was held unsustainable, in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: When inputs on which credit has been taken are removed as such, reversal of the credit availed on receipt satisfies the statutory requirement and a further duty demand on a deeming basis is not sustainable.

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