Used capital goods cleared after long use are not removed "as such"; credit reversal is limited to depreciated value.

Used capital goods cleared after substantial use are not treated as removed "as such" for the purpose of reversing the entire Cenvat credit originally taken. Rule 3(4) of the Cenvat Credit Rules, 2002 was applied to distinguish unused capital goods, fully scrapped goods, and capital goods removed after use; where the goods had been used for about nine years, the operative basis for reversal was the duty relatable to the depreciated value, not full credit reversal. This approach was supported by the Board circular and the later proviso in Rule 3(5) of the Cenvat Credit Rules, 2004, and avoids anomalous results inconsistent with the credit scheme.

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Issues: Whether capital goods cleared after substantial use can be treated as removed "as such" for the purpose of reversing the entire Cenvat credit originally taken, or whether reversal is confined to the duty relatable to the depreciated value of the used capital goods.

Analysis: Rule 3(4) of the Cenvat Credit Rules, 2002 applied to removal of inputs or capital goods "as such". The capital goods here had been used for about nine years before clearance, so they retained their identity as capital goods and were not in the same position as unused goods. The legal distinction was drawn between unused capital goods, fully scrapped capital goods, and used capital goods removed in between these stages. For used capital goods, the proper approach was to require payment corresponding to the depreciated value, consistent with the Board circular and the later proviso in Rule 3(5) of the Cenvat Credit Rules, 2004. Requiring full reversal in every case of clearance after use would produce anomalous results and defeat the scheme of credit on capital goods.

Conclusion: Used capital goods cleared after long use are not treated as removed "as such" for full credit reversal, and the Revenue's demand for reversal of the entire credit was not sustainable.

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