Cenvat credit removal as such fails for exhausted lubricating oil, and demand cannot rest on a ground absent from notice.

Rule 3(4) of the Cenvat Credit Rules, 2002 applied only where inputs or capital goods on which credit had been taken were removed as such. Used lubricating oil, after exhaustion of utility through long use, ceased to remain the original lubricating oil and could not be treated as a removal of cenvated input as such. The waste oil was also not shown to be usable as lubricant and was treated as not arising from any manufacturing process. A demand could not be confirmed on Rule 3(4) when the show cause notices had proceeded on a different basis and had not invoked that rule.

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Issues: Whether waste oil generated after use of lubricating oil and sold as such was liable to duty under Rule 3(4) of the Cenvat Credit Rules, 2002, and whether the demand could be sustained when the show cause notices had not invoked that rule.

Analysis: Rule 3(4) applied only when inputs or capital goods on which Cenvat credit had been taken were removed as such. Used lubricant oil, after being burnt or drained out on account of long use, ceased to remain lubricating oil and could not be treated as removal of the original cenvated input as such. The waste oil was not shown to be capable of use as lubricant and was treated as an item that did not arise from any manufacturing process. The adjudicating authority also could not confirm the demand by invoking Rule 3(4) when the show cause notices had proceeded on a different basis and had not invoked that rule.

Conclusion: The demand of duty on waste oil was not sustainable and the assessee was entitled to succeed.

Ratio Decidendi: Used lubricating oil sold after exhaustion of utility is not a removal of the original cenvated input as such, and a demand cannot be sustained on a legal basis not set out in the show cause notice.

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