Capital goods cleared after use are not cleared "as such"; full Cenvat credit reversal is not required.

Capital goods removed after substantial use do not fall within the expression "cleared as such" under Rule 3(4) of the Cenvat Credit Rules, 2002, because that phrase applies to goods cleared without being used in their original identity. The Court treated long-used machinery sold on payment of duty on transaction value as clearance after use, not as an unused removal requiring full credit reversal. The Tribunal's view was also supported by earlier decisions, a Board circular on valuation after use, and the later amendment recognising a distinct basis for used capital goods. The departmental challenge therefore failed and full Cenvat credit reversal was rejected.

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Issues: (i) Whether capital goods cleared after being used fall within the expression "cleared as such" under Rule 3(4) of the Cenvat Credit Rules, 2002. (ii) Whether the Revenue's appeal could succeed in view of the Tribunal's reliance on earlier decisions and the later statutory amendment dealing with removal of used capital goods.

Issue (i): Whether capital goods cleared after being used fall within the expression "cleared as such" under Rule 3(4) of the Cenvat Credit Rules, 2002.

Analysis: The expression "cleared as such" was held to apply to capital goods removed without being put to use in their original identity. Capital goods are ordinarily used over a period of time and lose their identity only when they become unserviceable or scrap. Where machinery has been used for several years and then sold on payment of duty on transaction value, it cannot be treated as cleared in the same condition in which it was taken credit of. The object of Cenvat credit is to avoid cascading of duty, and requiring full reversal after long use would defeat that object. The later proviso inserted in Rule 3(5) also reflected the distinction between unused clearance and clearance after use.

Conclusion: The machinery cleared after use did not amount to clearance "as such", and the assessee was not liable to reverse the full credit.

Issue (ii): Whether the Revenue's appeal could succeed in view of the Tribunal's reliance on earlier decisions and the later statutory amendment dealing with removal of used capital goods.

Analysis: The Tribunal's view was supported by earlier decisions taking the same approach and by the Board's circular explaining valuation after use with allowance for depreciation. The later amendment inserting a specific formula for used capital goods reinforced the distinction between capital goods cleared unused and capital goods cleared after use. No basis was shown to disturb the Tribunal's conclusion that the duty had been correctly paid on the transaction value.

Conclusion: The Revenue's challenge failed and the Tribunal's dismissal of the departmental appeal was sustained.

Final Conclusion: The legal effect of the decision is that capital goods removed after substantial use are not to be equated with goods cleared "as such", and the departmental demand for full credit reversal was rejected.

Ratio Decidendi: Capital goods cleared after use do not fall within "cleared as such" for the purpose of full Cenvat credit reversal, and duty is to be determined on the basis applicable to removal after use rather than on the original credit taken.

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