Reversal of Cenvat credit on used capital goods applies, but disclosed clearances defeated invocation of the extended limitation period.

Removal of used capital goods after use requires reversal of the Cenvat credit originally availed, and Rule 3(4)(c) of the Cenvat Credit Rules, 2004 was applied to determine duty liability on clearance. The clearance particulars and duty payment were disclosed in the monthly return, so suppression was not established and the extended limitation period could not be invoked. The substantive credit-reversal obligation was affirmed, but the demand could not be sustained because it was time-barred.

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Issues: (i) Whether credit availed on capital goods was required to be reversed on removal of the used capital goods. (ii) Whether the demand was barred by limitation in view of the show cause notice and the disclosure made in the monthly return.

Issue (i): Whether credit availed on capital goods was required to be reversed on removal of the used capital goods.

Analysis: The legal position was treated as settled that when capital goods are removed after use, the credit originally availed is required to be reversed. Rule 3(4)(c) of the Cenvat Credit Rules, 2004 was applied to such removal, and the earlier credit taken at the time of receipt remained relevant for determining the duty liability on clearance.

Conclusion: The requirement to reverse the credit on removal of used capital goods was affirmed.

Issue (ii): Whether the demand was barred by limitation in view of the show cause notice and the disclosure made in the monthly return.

Analysis: The clearance and short reversal occurred in September 2004, while the show cause notice was issued in February 2006. The particulars of removal and payment of duty were reflected in the monthly return, and the allegation of suppression was not substantiated. On that footing, the extended period could not be invoked.

Conclusion: The demand was held to be barred by limitation.

Final Conclusion: The Revenue's challenge failed because, despite the substantive liability on removal of used capital goods, the demand could not be sustained on limitation.

Ratio Decidendi: Removal of used capital goods attracts reversal of the credit originally availed, but a demand for differential duty cannot be sustained by invoking suppression where the relevant clearance particulars were disclosed and the extended period is not justified.

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