Depreciation on removal of used capital goods governs payable credit, and prior payment of balance interest defeats penalty.

On removal of used capital goods, the amount payable is to be computed after reducing the credit attributable to depreciation in line with Board Circular No. 643/34/2002-CX and settled Tribunal practice. Applying that principle, the assessee's earlier reversal exceeded the balance payable on the depreciated value, leaving only a small residual demand. Because that differential amount and the interest had already been paid before adjudication, penalty was not justified. The operative effect was to confine the demand to the reduced balance and delete the penalty.

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Issues: Whether, on removal of used capital goods, the assessee was entitled to compute the amount payable after allowing depreciation as per the Board circular and whether penalty could be sustained when the differential amount and interest had already been paid before adjudication.

Analysis: The amount payable on removal of used capital goods was required to be worked out by reducing the credit attributable to depreciation in accordance with the Board's Circular No. 643/34/2002-CX dated 01.07.2002 and the settled Tribunal view. On the facts, the assessee had already reversed an amount higher than the balance worked out on the basis of depreciation, and the further differential demand was confined to a small balance. Since that balance and interest had been discharged before adjudication, the circumstances did not justify imposition of penalty.

Conclusion: The assessee was entitled to depreciation while determining the amount payable on removal of used capital goods. The differential demand was restricted to the remaining balance and the penalty was set aside.

Final Conclusion: The appeal succeeded only to the extent of deleting the penalty and confining the demand to the reduced balance amount.

Ratio Decidendi: On removal of used capital goods, the amount payable is to be computed after allowing depreciation under the applicable Board circular, and penalty is not warranted where the assessee has already discharged the differential amount and interest before adjudication.

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