Used capital goods after long use: Rule 3(5) did not require full credit reversal, and the demand failed.

Used capital goods cleared after long use were not treated as removed "as such" under Rule 3(5) of the Cenvat Credit Rules, 2004, because the goods had been in use for about ten years before clearance. On that basis, reversal of the entire original Cenvat credit was not required. The proviso also supported the assessee, as depreciation at 2.5% per quarter over the period of use resulted in the credit being fully exhausted. The demand based on transaction value was therefore unsustainable, and no Cenvat credit reversal was payable.

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Issues: Whether duty was payable on the transaction value of used capital goods removed after long use, and whether any Cenvat credit was required to be reversed under Rule 3(5) of the Cenvat Credit Rules, 2004.

Analysis: Rule 3(5) applies when inputs or capital goods are removed as such from the factory. The capital goods in question had been used for about ten years before clearance and therefore could not be treated as removed as such. In such a situation, reversal of the entire credit originally taken was not warranted. The proviso to Rule 3(5) also supported the assessee's case because depreciation at 2.5% per quarter over the period of use resulted in complete allowance of the credit.

Conclusion: No Cenvat credit reversal was payable and the demand based on transaction value was unsustainable. The appeal was therefore allowed in favour of the assessee.

Ratio Decidendi: Used capital goods cleared after substantial use are not treated as removed as such, and Rule 3(5) of the Cenvat Credit Rules, 2004 does not require reversal of the original credit where the statutory reduction for period of use fully exhausts the credit.

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