PRESENTATION ON CENVAT(CENTRAL VALUE ADDED TAX)

CENTRAL VALUE ADDED TAX

PRESENTED BY:- BABASAB PATIL

DEFINITIONSThe Modvat Scheme has been replaced by a new set of rules

called CENVAT Credit Rules 2002.

The definition of Capital Goods, Exempted Goods, Final

products and the inputs has been provided in Rule 2 of CENVAT

Credit Rules, 2002. It also included the list of items eligible for

Capital Goods as well as for the inputs.

DUTIES ELIGIBLE FOR CENVAT

• A manufacturer or producer of final product is

allowed to take CENVAT credit of duties specified in

the Cenvat Credit Rules , 2002.

CENVAT CREDIT RULES

•In order to remove the cascading effect of excise duty and

service tax, the Excise Duty paid on the inputs,

•capital goods and input services, which are used in or in relation

to the manufacture of final product or for providing output

services is permissible to be set-off against the excise duty

liability on the final products or paying service tax under the

CENVAT Credit Rules, 2004.

•These rules have been notified to regulate the availment and

utilization of the CENVAT credit.

WHEN AND HOW MUCH CREDIT CAN BE TAKEN

The Cenvat Credit in respect of inputs may be taken immediately on receipt of the inputs.

The Cenvat credit in respect of Capital Goods received in a factory at any point of time in a

given financial year shall be taken only for an amount not exceeding fifty percent of the duty

paid on such capital goods in the same financial year and the balance of Cenvat Credit may

be taken in any subsequent financial year.

The Cenvat credit shall be allowed even if any inputs or capital goods as such or after being

partially processed are sent to a job worker for further processing, testing, repair etc.

The salient features are as follows:

“Capital goods”InputInput service Input service distributor Under the cenvat credit rules, 2004, the credit of following duties/tax is allowed The cenvat credit may be utilised for payment of —

“CAPITAL GOODS” means

The following goods, namely:—

All goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading

No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Excise Tariff

Act;

Pollution control equipment;

Components, spares and accessories of the goods specified ad (i) and (ii)

Moulds and dies, jigs and fixtures;

Refractories and refractory materials;

Tubes and pipes and fittings thereof; and

Storage tank.

INPUT “Input” means —

•All goods, except light diesel oil, high speed diesel oil and motor spirit, commonly

known as petrol, used in or in relation to the manufacture of final products whether

directly or indirectly.

•And whether contained in the final product or not and includes lubricating, oils,

greases, cutting oils, coolants, accessories of the final products cleared along with the

final product, goods used as paint, or as packing material, or as fuel,

• For generation of electricity or steam used in or in relation to manufacture of final

products or for any other purpose, within the factory of production.

INPUT SERVICE Definition of Input Service

“Input service” means any service, —

Used by a provider of taxable service for providing an output

service; or  

Used by the manufacturer, whether directly or indirectly, in or in

relation to the manufacture of final products and clearance of

final products from the place of removal,

INPUT SERVICE DISTRIBUTOR

Meaning of Input Service Distributor

•“Input service distributor” means an office of the manufacturer or producer

of final products or provider of output service, which receives invoices issued

under rule 4A of the Service Tax Rules, 1994 towards purchases of input

services and issues invoice, bill or, as the case may be, challan for the

purposes of distributing the credit of service tax paid on the said services to

such manufacturer or producer or provider.

UNDER THE CENVAT CREDIT RULES, 2004, THE CREDIT OF FOLLOWING DUTIES/TAX IS ALLOWED

•The duty of excise specified in the First Schedule to the Tariff Act,

leviable under the Act;

•The duty of excise specified in the Second Schedule to the Tariff Act,

leviable under the Act;

•The additional duty of excise leviable under section 3 of the Additional

Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978);

•The additional duty of excise leviable under section 3 of the Additional

Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957);

THE CENVAT CREDIT MAY BE UTILISED FOR PAYMENT OF —

•Any duty of excise on any final product; or

•An amount equal to CENVAT credit taken on inputs if such inputs are

removed as such or after being partially processed; or

•An amount equal to the CENVAT credit taken on capital goods if such capital

goods are removed as such; or

•An amount under sub-rule (2) of rule 16 of the Central Excise Rules; 2002

•Service Tax on any output services: Provided that while paying duty, the

CENVAT credit shall be utilised only to the extent such credit is available on

the last day of the month for payment of duty relating to the month.

Duty Paying Documents against which CENVAT credit can be availed are:-

Invoice issued by

A manufacture of inputs or capital goods.

An importer

An importer from his depot or premises of consignment agent,

Provided the depot/ premises is registered with central excise

A first/second stage dealer.

A supplementary invoice

A bill of entry.

A certificate issued by appraiser of customs

An invoice/bill/challan issued by providers of input service.

A challan evidencing payment of service tax.

Credit of duty is allowed only if all the conditions given below are met:-

The basic criteria for availment of credit of duty paid

on inputs or capital goods is that the goods shall be

used in manufacture of final products.

The goods shall be accompanied with proper prescribed

documents.

`MODVAT' (Modified Value Added Tax)

The modvat scheme is regulated by Rules 57A to 57U of the Central Excise

Rules and the notifications issued there under (The Central Excise Rules,

2002 (Section 143 of the Finance Act, 2002).

Modvat Scheme ensures the revenue of the same order and at same time the

price of the final product could be lower.

Apart from reducing the costs through elimination of cascade effect, and

bringing in greater rationalization in tax structure and also bringing in

certainty in the amount of tax leviable on the final product, this scheme will

help the consumer to understand precisely the impact of taxation on the cost of

any product.

MODVAT and CENVAT

Subsequently, MODVAT scheme was restructured into CENVAT( Central Value

Added Tax) scheme. A new set of rules 57AA to 57AK , under The Cenvat Credit

Rules, 2004,

Were framed and whatever restrictions were there in MODVAT Scheme were put

to an end and comparatively, a free hand was given to the assesses.

Under the Cenvat Scheme, a manufacturer of final product or provider of taxable

service shall be allowed to take credit of duty of excise as well as of service tax

paid on any input received in the factory or any input service received by

manufacturer of final product.

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