CENVAT

Presented To : Namit Sir Presented By : Jasmine 4270 B.Com 2nd

INTRODUCTION TO CENVAT
CENVAT Credit is an input duty relief scheme where the manufacturer are allowed a set off of the taxes paid on the inputs that are used while manufacturing the final products or providing the output service.

ORIGIN OF CENVAT : VAT

Value added tax is a tax payable only on value added to commodities and on the services rendered. A comprehensive form of VAT covers the value added at all three levels, i.e. 1) manufacturing,

2) wholesaling and
3) retailing.

CASCADING EFFECT
A tax based on selling price
of a product has a cascading effect whereas VAT is a multi point tax i.e. no cascading effect.

Example:
X ltd to Y ltd Sale Price ADD: Sales tax @10% Total Sale Price

Under Sales tax Law

X ltd to Y ltd 10,000 1,10,000 Sale Price ADD: VAT @ 10%

Under VAT Law

1,00,000 10,000

1,00,000

Total Sale Price

1,10,000

Y ltd to customer
Cost for purchase 1,10,000

Y ltd to customer
Cost for purchase 1,00,000 (excluding VAT)

ADD: expenditure incurred

50,000 1,60,000

ADD: expenditure incurred

50,000 1,50,000 30,000

ADD: Profit @20%

32,000

1,92,000 Sales Tax @10%

Total Sale price

1,80,000 VAT @10% 18,000

1,98,000

19,200
2,11,200

Sales Tax/VAT to be paid to the Government

By X ltd

10,000

By X ltd

By Y ltd

19,200

By Y ltd

VAT collected

18,000

Less: Input tax credit

10,000

Total

29,200

Total

FEATURES
The CENVAT scheme applies to all excisable goods
an taxable services.

The explicit objective is reducing the cascading

impact on the price of final product.

specified documents to proof payments of duty/tax

are must to avail CENVAT credit.

No CENVAT credit will be allowed if the final product

is exempted.

Credit can be taken immediately on receipt of the

inputs. In case of the capital good, credit of the duty not exceeding 50% can be taken in the year of acquisition and the balance in the subsequent years.

Continued..
CENVAT credit covers all final products
except matches .

For textiles the CENVAT scheme is

optional.

Its applicable to whole India except

Jammu & Kashmir.

All the items listed in Tariff schedule

except high seep diesel oil & motor sprits are covered.

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 : DEFINITIONS
1) Capital goods; means the following goods

all goods falling under chapter 82, 84, 85, 90.

Components, spares and accessories. Moulds and dies. Re-fractories 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

Continued..
2) Exempted goods; means goods exempted from whole of duty and include goods which are chargeable to NIL rate of interested.

3) Exempted Services; means taxable services which are exempted from the whole of the service tax.

4) Final product; means excisable goods manufactured or produced from inputs or using input services.

5) First stage dealer; means a dealer who purchases goods directly from

o The manufacturer or from depot or from premises of the consignment agent or from any other premises. o An importer or from the depot of an importer or from premises of the consignment agent of importer.

Continued..
6) Input; means

o All goods used in the factory by manufacturers for manufacturing final products.
o Any goods including accessories the value of which is included in the value of final product. o All goods used for generation of electricity for captive use. o All goods used for providing output services excluding LSD (Low Speed Diesel), HSD (High Speed Diesel) etc.

7) Input Service; means any service

o Used by a provider of taxable service for providing an output service o Used by a manufacturer , whether directly or indirectly, in relation to the manufacturer of final products and clearance of final
products upto the place of removal, and includes services like advertisement or sales promotion , market research, accounting etc.

RULE 3 : Availment of CENVAT CREDIT

A manufacturer / service provider can take CREDIT of

Basic 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.

Continued..
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 CREDIT

For goods to be exported under bond, credit on inputs or input services can be used for the payment of duty on any final product cleared for home consumption or for export.

Where for any reason, such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to conditions.

RULE 6 : Obligation of manufacturer of dutiable and exempted goods

Cenvat credit is not allowed on quantity of inputs and input services used exclusively in manufacture of exempted goods/services. For this purpose the manufacturer or output service provider may follow either

of the following two methods :-

Maintain separate accounts for different goods. If he does not maintain separate accounts and he avails
cenvat credit on 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 Accounts

The Cenvat Credit shall be taken on the basis of any of following duty paying documents :-

Invoice issued by :a) A manufacturer b) By an importer

c) A first stage dealer

d) A consignment agent

A 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.

RULE 10 : Transfer of cenvat credit

If a manufacturer shifts his factory to another site or factory is transferred on account of charge in ownership due to sale, merger, amalgamation, lease or joint venture, then, he shall be allowed to transfer the cenvat credit lying

unutilized in his account after taking approval of assistant

or deputy commissioner.

However transfer of cenvat credit shall be allowed only if

stock of such inputs too has been transferred to the new unit.

RULE 14 : Recovery of cenvat credit wrongly taken

Where the cenvat credit has been taken
or utilized wrongly, the same along with interest shall be recovered from the manufacturer under provisions of section 11A and 11B of Central Excise Act 1944.

RULE 15 : Confiscation and penalty

If a person, takes wrong cenvat credit in respect

of input or capital goods, or without ensuring

that appropriate duty on such inputs or capital goods has been fixed or contravenes any of the

provisions of the cenvat credit rules, then he

shall be liable to penalty

not exceeding the duty on excisable goods or

Rs. 10,000 whichever is high

his goods shall also be liable to

consification.

RULE 15 A : General Penalty

A general penalty upto Rs. 5000 can be
imposed in case of contravention of any of the provision of CENVAT CREDIT RULES 2004, for which no specific penal provision exists.

Thank You