CENTRAL VALUE ADDED TAX PRESENTED BY:- BABASAB PATIL
DEFINITIONSThe Modvat Scheme has been replaced by a new set of rulescalled CENVAT Credit Rules 2002.The definition of Capital Goods, Exempted Goods, Finalproducts and the inputs has been provided in Rule 2 of CENVATCredit Rules, 2002. It also included the list of items eligible forCapital 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 RULESIn 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 outputservices is permissible to be set-off against the excise dutyliability on the final products or paying service tax under theCENVAT 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 TAKENThe 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 agiven financial year shall be taken only for an amount not exceeding fifty percent of the dutypaid on such capital goods in the same financial year and the balance of Cenvat Credit maybe taken in any subsequent financial year.The Cenvat credit shall be allowed even if any inputs or capital goods as such or after beingpartially processed are sent to a job worker for further processing, testing, repair etc.
The salient features are as follows:“Capital goods”InputInput serviceInput service distributorUnder the cenvat credit rules, 2004, the credit of followingduties/tax is allowedThe cenvat credit may be utilised for payment of —
“CAPITAL GOODS” meansThe following goods, namely:—All goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, headingNo. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Excise TariffAct;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; andStorage tank.
INPUT “Input” means —• All goods, except light diesel oil, high speed diesel oil and motor spirit, commonlyknown as petrol, used in or in relation to the manufacture of final products whetherdirectly 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 thefinal 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 finalproducts 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 outputservice; orUsed by the manufacturer, whether directly or indirectly, in or inrelation to the manufacture of final products and clearance offinal products from the place of removal,
INPUT SERVICE DISTRIBUTORMeaning of Input Service Distributor•“Input service distributor” means an office of the manufacturer or producerof final products or provider of output service, which receives invoices issuedunder rule 4A of the Service Tax Rules, 1994 towards purchases of inputservices and issues invoice, bill or, as the case may be, challan for thepurposes of distributing the credit of service tax paid on the said services tosuch manufacturer or producer or provider.
UNDER THE CENVAT CREDIT RULES, 2004, THECREDIT OF FOLLOWING DUTIES/TAX IS ALLOWEDThe 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; orAn amount equal to the CENVAT credit taken on capital goods if such capital•goods are removed as such; orAn 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 onthe 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 byA manufacture of inputs or capital goods.An importerAn importer from his depot or premises of consignment agent,Provided the depot/ premises is registered with central exciseA first/second stage dealer.A supplementary invoiceA 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 paidon inputs or capital goods is that the goods shall beused in manufacture of final products.The goods shall be accompanied with proper prescribeddocuments.
`MODVAT (Modified Value Added Tax)The modvat scheme is regulated by Rules 57A to 57U of the Central ExciseRules 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 theprice of the final product could be lower.Apart from reducing the costs through elimination of cascade effect, andbringing in greater rationalization in tax structure and also bringing incertainty in the amount of tax leviable on the final product, this scheme willhelp the consumer to understand precisely the impact of taxation on the cost ofany product.
MODVAT and CENVATSubsequently, MODVAT scheme was restructured into CENVAT( CentralValue Added Tax) scheme. A new set of rules 57AA to 57AK , under TheCenvat Credit Rules, 2004,Were framed and whatever restrictions were there in MODVAT Scheme wereput to an end and comparatively, a free hand was given to the assesses.Under the Cenvat Scheme, a manufacturer of final product or provider oftaxable service shall be allowed to take credit of duty of excise as well as ofservice tax paid on any input received in the factory or any input servicereceived by manufacturer of final product.