CENVAT credit on used capital goods must be reversed on depreciated value, not full original credit, when cleared after use.

Capital goods cleared after use are not removed "as such" within Rule 3(4) of the CENVAT Credit Rules when they are no longer unused goods; the applicable reversal is therefore limited to the depreciated transaction value, not the full original CENVAT credit. On that basis, the demand for differential duty, interest, and penalty could not stand, and the Revenue's challenge failed. The First Appellate Authority's order setting aside the demand was sustained.

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Issues: Whether capital goods cleared after use were removed "as such" for the purpose of Rule 3(4) of the CENVAT Credit Rules and, if so, whether reversal of CENVAT credit was to be made on the full original credit or on the depreciated transaction value.

Analysis: The dispute turned on the meaning of "as such" in Rule 3(4) of the CENVAT Credit Rules. The settled view applied was that capital goods used for some years and then cleared are not removed "as such" in the sense of unused goods. In such cases, the credit reversal is to reflect the depreciated value of the capital goods and not the entire credit originally availed. Applying that principle, the demand of differential duty, interest, and penalty could not survive.

Conclusion: The credit reversal made on the depreciated value was held to be correct, and the Revenue's challenge failed.

Final Conclusion: The appeal was rejected and the order of the First Appellate Authority, which had set aside the duty demand, interest, and penalty, was sustained.

Ratio Decidendi: Where capital goods are cleared after being used, credit reversal under Rule 3(4) of the CENVAT Credit Rules is confined to the depreciated value and not the full credit originally taken.

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