Proportionate Cenvat reversal applies on sale of used capital goods, not full credit reversal after long use.

The expression "as such" in Rule 3(5) of the Cenvat Credit Rules, 2004 was treated as covering capital goods that remained identifiable even after use. Reading the earlier and later rules together, the provision was not construed literally to require reversal of the entire credit merely because used capital goods were sold at a depreciated value. To avoid an absurd result and preserve the scheme of Cenvat credit on capital goods, the payable amount was taken to be the credit reduced in proportion to the period of use. The manufacturer was therefore liable to reverse only proportionate credit, not the full credit originally taken.

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Issues: Whether, on removal of used capital goods as capital goods during the relevant period, the manufacturer was required to reverse the entire Cenvat credit originally taken or only a proportionate amount based on the period of use.

Analysis: The expression "as such" in Rule 3(5) of the Cenvat Credit Rules, 2004 and the corresponding earlier rule was held to cover capital goods that remained identifiable as capital goods even after use. The scheme of the earlier rules and the later insertion of a specific provision for used capital goods showed that the rule should not be read literally to compel reversal of full credit even where the goods were sold after long use at a depreciated value. To avoid an absurd result and to preserve the purpose of Cenvat credit on capital goods, the amount payable was held to be the credit reduced in proportion to the period of use.

Conclusion: The assessee was liable to reverse only proportionate credit, not the full credit originally taken; the Revenue's demand succeeded only to that limited extent.

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