CENVAT valuation of used capital goods follows the prescribed straight line method, not Income-tax depreciation.

The CENVAT scheme for removal of used capital goods requires depreciation and duty reversal to be computed under the method prescribed by the relevant rules and binding circulars, not by reference to Section 32 of the Income-tax Act, 1961. Rule 57S of the Central Excise Rules, 1944 and the later CENVAT provisions indicate a flat or straight line basis for valuation on removal, while Rule 4(4) of the Cenvat Credit Rules, 2004 concerns availment of credit and does not govern the valuation mechanism under Rule 3(4). The later express straight line method in the 2004 Rules reinforces this approach.

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Issues: Whether, on removal of used capital goods, depreciation for determining the payable duty and assessable value under the CENVAT scheme had to be computed with reference to Section 32 of the Income-tax Act, 1961, or by the straight line method reflected in the departmental circulars and the relevant CENVAT provisions.

Analysis: The applicable scheme showed a consistent statutory and administrative approach to valuation and reversal of credit on removal of capital goods. Rule 57S of the Central Excise Rules, 1944 and the later CENVAT provisions indicated deduction on a flat basis for used capital goods, and the 2002 Circular read with the 1993 Board Letter clarified the manner of computation. Rule 4(4) of the Cenvat Credit Rules, 2004, which refers to depreciation under Section 32 of the Income-tax Act, 1961, operated in the context of availment of credit and did not govern the valuation mechanism under Rule 3(4). The Court also noted that the later insertion of an express straight line method in the 2004 Rules reinforced the settled approach and did not support the assessee's proposed method based on written down value.

Conclusion: The applicable method was the straight line method and not depreciation under Section 32 of the Income-tax Act, 1961. The question was answered against the assessee and in favour of the revenue.

Ratio Decidendi: Where the CENVAT scheme specifically provides the basis for valuation or reversal on removal of used capital goods, that scheme prevails over a general reference to income-tax depreciation, and depreciation must be computed according to the method prescribed by the CENVAT rules and binding circulars.

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