CENVAT An Input duty relief scheme. Designed to reimburse the user manufacturer with the duty paid on the inputs . Prevents cascading effect of duty on final products. CENVAT scheme covers Capital goods and all inputs barring motor spirit (petrol), and high speed diesel and LDO. It covers all final products except matches. For textiles, CENVAT scheme is optional. This scheme applies to whole of India except Jammu and Kashmir.
VATValue added tax is a tax payable only on value added tocommodities and on the services rendered.A comprehensive form of VAT covers the value added at allthree levels, i.e.1) manufacturing,2) wholesaling and3) retailing.
CASCADING EFFECTA tax based on selling price of a product has a cascading effectwhereas VAT is a multi point tax i.e. no cascading effect.Example: Under Sales tax Law Under VAT Law X ltd to Y ltd X ltd to Y ltd Sale Price 1,00,000 Sale Price 1,00,000 ADD: Sales 10,000 ADD: VAT @ 10,000 tax @10% 10% Total Sale 1,10,000 Total Sale Price 1,10,000 Price
Y ltd to customer Y ltd to customerCost for purchase 1,10,000 Cost for purchase 1,00,000 (excluding VAT)ADD: expenditure 50,000 ADD: expenditure 50,000 incurred incurred 1,60,000 1,50,000ADD: Profit @20% 32,000 30,000 1,92,000 1,80,000 Sales Tax @10% 19,200 VAT @10% 18,000 Total Sale price 2,11,200 1,98,000
Sales Tax/VAT to be paid to theGovernmentBy X ltd 10,000 By X ltd 10,000By Y ltd 19,200 By Y ltd VAT collected 18,000 Less: Input tax 10,000 8,000 creditTotal 29,200 Total 18,000
CENVAT CREDIT RULES, 2004 Rule 2 – DEFINITIONS Rule 3 – Availment of CENVAT CREDIT Rule 4 – Conditions for allowing CENVAT CREDIT Rule 5 – Refund of CENVAT CREDIT Rule 6 – Obligation of manufacturer of dutiable & exempted goods Rule 9 – Documents and Accounts Rule 10 – Transfer of CENVAT CREDIT Rule 14 – Recovery of CENVAT CREDIT wrongly taken Rule 15 – General penalty
Rule 2 - Definitions1) Capital goods; means the following goods all goods falling under chapter 82, 84, 85, 90. Components, spares and accessories. Moulds and dies. Refractories and refractory materials. Tubes, pipes and fittings thereof. Pollution control equipment. Storage tank.above goods can be used ;1) In the factory of the manufacturer of final products.2) Outside factory for generation of electricity for captive consumption.
2) Exempted goods; means goods exempted from whole of duty andinclude goods which are chargeable to NIL rate of interested.3) Exempted Services; means taxable services which are exempted fromthe whole of the service tax.4) Final product; means excisable goods manufactured or produced frominputs or using input services.5) First stage dealer; means a dealer who purchases goods directly fromoThe manufacturer or from depot or from premises of the consignmentagent or from any other premises.oAn importer or from the depot of an importer or from premises of theconsignment agent of importer.
6) Input; meansoAllgoods used in the factory by manufacturers for manufacturing finalproducts.oAny goods including accessories the value of which is included in the valueof final product.oAll goods used for generation of electricity for captive use.oAllgoods used for providing output services excluding – LSD (Low SpeedDiesel), HSD (High Speed Diesel) etc.7) Input Service; means any serviceoUsed by a provider of taxable service for providing an output serviceoUsed by a manufacturer , whether directly or indirectly, in relation to themanufacturer of final products and clearance of final products upto the place ofremoval, and includes services like advertisement or sales promotion , market research, accounting etc.
Rule 3 – Availment of CENVAT CREDITA manufacturer / service provider can take CREDIT ofBasic Excise Duty.Special Excise Duty.Additional duty of excise on (Textile and Textile articles)Additional duty of excise on (Goods of Special Importance)National Calamity Contingent Duty (NCCD)Education Cess on Excise duty.Countervailing duty (of custom duty)Service tax.
Rule 4 – Conditions for allowing CENVAT CREDIT The cenvat credit in respect of inputs may be taken immediately on the date of receipt of inputs. The cenvat credit in respect of capital goods to be availed within a period of 2 years i.e.; a) 50% immediately when capital goods are received and b) balance 50% in the next financial year. Credit allowed to a manufacturer even if capital goods are acquired by him on lease, hire purchase or loan agreement. Credit is allowed even if any inputs or capital goods are sent to job worker place for further processing, but goods must be received back within 180 days.
Cenvat credit is allowed even in respect of jigs, fixtures, moulds and dies. Cenvat credit is not allowed on the goods used for office use. Cenvat credit will not be allowed on that part of capital goods that represents depreciation. The commissioner of central excise having jurisdiction over the factory of manufacturer, who has sent the input outside his factory to a job worker, may by an order allow final products to be removed from promises of job worker. So, a job worker can avail the cenvat credit on behalf of manufacturer.
Rule 5 – Refund of CENVAT CREDITFor goods to be exported under bond, credit on inputs or inputservices can be used for the payment of duty on any final productcleared for home consumption or for export.Where for any reason, such adjustment is not possible, themanufacturer shall be allowed refund of such amount subject toconditions.
Rule 6 – Obligation of manufacturer of dutiable and exempted goodsCenvat credit is not allowed on quantity of inputs and input servicesused exclusively in manufacture of exempted goods/services. For thispurpose the manufacturer or output service provider may follow eitherof the following two methods :-Maintain separate accounts for different goods.If he does not maintain separate accounts and he avails cenvat crediton inputs or input services, then 6% of total price (excluding all taxes)shall be paid on clearance of final product from factory.
Rule 9 – Documents and AccountsThe Cenvat Credit shall be taken on the basis of any of following duty payingdocuments :-Invoice issued by :- a) A manufacturer b) By an importer c) A first stage dealer d) A consignment agentA supplementary invoice issued by a manufacturer or importer.A bill of entry.A certificate issued by an appraiser of custom.A Challan evidencing the payment of service tax.An invoice, bill or Challan issued by a provider of input service.
CENVAT RETURNSManufacturer month By 10th of next month. of final products. Provider of Half yearly return By the end of theoutput service. month following the particular half year.First stage or quaterly By 15th of next monthsecond stage after the end of the dealer, quarter.
Rule 10 – Transfer of cenvat creditIf a manufacturer shifts his factory to another site or factory istransferred on account of charge in ownership due to sale, merger,amalgamation, lease or joint venture, then, he shall be allowed to transferthe cenvat credit lying unutilized in his account after taking approval ofassistant or deputy commissioner.However transfer of cenvat credit shall be allowed only if stock of suchinputs too has been transferred to the new unit.
Rule 14 – Recovery of cenvat creditwrongly takenWhere the cenvat credit has been taken or utilized wrongly, the samealong with interest shall be recovered from the manufacturer underprovisions of section 11A and 11B of Central Excise Act 1944.
Rule 15 – Confiscation and penaltyIf a person, takes wrong cenvat credit in respect of input or capitalgoods, or without ensuring that appropriate duty on such inputs orcapital goods has been fixed or contravenes any of the provisions of thecenvat credit rules, then he shall be liable to penaltynot exceeding the duty on excisable goods orRs. 10,000 whichever is high his goods shall also be liable to consification.
Rule 15A – General PenaltyA general penalty upto Rs. 5000 can be imposed in case of contraventionof any of the provision of CENVAT CREDIT RULES 2004, for which nospecific penal provision exists.
Difference between MODVAT and CENVAT Basis of MODVAT CENVAT difference 1) Meaning It stands for Modified Value It stands for Central Value added added tax. tax. 2) Existence It is an old scheme/ It is a new scheme/ successor predecessor scheme and no scheme and has replaced more in existence. MODVAT.3) Provision for It has separate provisions for It contains combined rules forCapital goods capital goods. capital goods and inputs.4) Declarations It requires submission of CENVAT does not require any declaration in respect of inputs such declaration. and capital goods.
5) Statutory registers It prescribe statutory Such registers are not registers RG23A, 23B and required under CENVAT, but RG23C, RG23D to be records have to be maintained. maintained.6) Provisions for Waste and It contains separate It does not contain separateScrap provisions for Waste and provisions for it. Scrap.7) Scope of Narrow definition of Capital Widened definition ofdefinition/Scope of scheme goods. Capital goods.for Capital goods.8) Credit on Capital goods Credit on capital goods can It has to be taken in two be taken immediately . yearly installments of 50% each.9) Credit availability Credit can be availed only CENVAT can be availed on on duplicate copy of any copy of Invoice. invoice.10) Installation of Capital With regard to capital No such condition exists ingoods goods, credit can be CENVAT. availed only if the capital goods are installed and ready to put into use.