Depreciation on removed capital goods governs Cenvat duty valuation; demand must be recomputed after quarterly reduction.

When capital goods are removed after use under the Cenvat Credit regime, duty liability is to be worked out on the depreciated value rather than the full credit taken. The Tribunal relied on the Larger Bench view that depreciation at 2.5% per quarter is allowable from the date credit is availed until the date of removal, notwithstanding Rule 3(5) of the Cenvat Credit Rules. Applying that principle, the demand could not stand on the full credit amount. The order was set aside and the matter remanded for re-quantification of duty and penalty after allowing depreciation and providing an opportunity of hearing.

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Issues: Whether duty was payable on capital goods removed after use to a sister concern, and if so, whether the demand had to be computed on the full credit taken or after allowing depreciation at 2.5% per quarter.

Analysis: The dispute concerned removal of capital goods after use. The Tribunal noted that the Larger Bench had settled the issue by holding that, despite Rule 3(5) of the Cenvat Credit Rules, the legislative history justified allowing depreciation at 2.5% for each quarter from the date credit was taken until the date of removal. The Tribunal applied that ratio and held that the demand could not be sustained on the full credit amount without such reduction.

Conclusion: The appellant was liable only on the depreciated value of the capital goods, and the adjudicating authority was required to re-compute the demand and penalty accordingly.

Final Conclusion: The impugned order was set aside and the matter was remanded for re-quantification of duty and penalty after allowing depreciation and affording an opportunity of hearing.

Ratio Decidendi: When capital goods are removed after use, duty liability under the Cenvat Credit regime is to be worked out on the depreciated value by allowing reduction at 2.5% per quarter from the date of availing credit until removal.

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