Used capital goods are not cleared "as such"; full Cenvat credit reversal is not required on post-use clearance.

Used capital goods cleared after being put to use are not removed "as such" for purposes of Rule 3(5) of the Cenvat Credit Rules, 2004, so reversal of the entire Cenvat credit is not required. The reasoning treated the clearance of worn or used capital goods as governed by the valuation and duty framework applicable to used capital goods, supported by the Board circular and the later amendment aligning the rule with that understanding. On that basis, duty on reduced transaction value applied and full credit reversal was unsustainable.

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Issues: Whether used capital goods cleared on payment of duty on their reduced transaction value were liable to reversal of the entire Cenvat credit availed, or whether such clearances could be treated as removal of capital goods 'as such'.

Analysis: Rule 3(5) of the Cenvat Credit Rules, 2004 required reversal of credit when inputs or capital goods were removed 'as such'. The expression was applied in the context of capital goods that had been put to use, along with the Board circular clarifying valuation on such removals and the later amendment introducing reduced payment for used capital goods. The reasoning adopted that goods used over time do not retain the character of goods cleared 'as such', and that the later amendment was only in line with the pre-existing understanding of the scheme. The cited precedent law was treated as supporting the view that used capital goods cleared after use attract duty on the reduced value and not full credit reversal.

Conclusion: The clearance of the capital goods after use did not amount to removal 'as such', and the demand for reversal of the entire Cenvat credit was not sustainable; the finding was in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: Used capital goods cleared after being put to use are not treated as goods removed 'as such' for the purpose of mandatory reversal of the entire Cenvat credit; the applicable liability is to be determined on the basis governing clearance of used capital goods.

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