CENVAT

Hope! This will help you to understand the concept of CENVAT.

1. By: Manisha Joshi By: Manisha Joshi

2. 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.

3. 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.

4. 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:
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
tax @10%
10,000 ADD: VAT @
10%
10,000
Total Sale
Price
1,10,000 Total Sale Price 1,10,000

5. Y ltd to customer Y ltd to customer
Cost for purchase 1,10,000 Cost for purchase 1,00,000
(excluding VAT)
ADD: expenditure
incurred
50,000 ADD: expenditure
incurred
50,000
1,60,000 1,50,000
ADD: 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

6. By X ltd 10,000 By X ltd 10,000
By Y ltd 19,200 By Y ltd
VAT collected18,000
Less: Input tax
credit
10,000 8,000
Total 29,200 Total 18,000
Sales Tax/VAT to be paid to the
Government

7. 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

8. 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.
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.

9. 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
oThe manufacturer or from depot or from premises of the consignment
agent or from any other premises.
oAn importer or from the depot of an importer or from premises of the
consignment agent of importer.

10. 6) Input; means
oAll goods used in the factory by manufacturers for manufacturing final
products.
oAny goods including accessories the value of which is included in the value
of final product.
oAll goods used for generation of electricity for captive use.
oAll goods used for providing output services excluding – LSD (Low Speed
Diesel), HSD (High Speed Diesel) etc.
7) Input Service; means any service
oUsed by a provider of taxable service for providing an output service
oUsed 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. CENVAT RETURNS
Manufacturer Manufacturer
of final of final
products.products.
monthmonth By 10By 10
thth
of next month. of next month.
Provider of Provider of
output service.output service.
Half yearly return Half yearly return By the end of the By the end of the
month following the month following the
particular half year.particular half year.
First stage or First stage or
second stage second stage
dealer,dealer,
quaterlyquaterly By 15By 15
thth
of next month of next month
after the end of the after the end of the
quarter.quarter.

18. 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.

19. 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.

20. 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.

21. Rule 15A – 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.

22. Difference between
MODVAT and CENVAT
Basis of
difference
MODVAT CENVAT
1)Meaning It stands for Modified Value
added tax.
It stands for Central Value added
tax.
2) Existence It is an old scheme/
predecessor scheme and no
more in existence.
It is a new scheme/ successor
scheme and has replaced
MODVAT.
3) Provision for
Capital goods
It has separate provisions for
capital goods.
It contains combined rules for
capital goods and inputs.
4) Declarations It requires submission of
declaration in respect of inputs
and capital goods.
CENVAT does not require any
such declaration.

23. 5) Statutory registers It prescribe statutory
registers RG23A, 23B and
RG23C, RG23D to be
maintained.
Such registers are not
required under CENVAT, but
records have to be
maintained.
6) Provisions for Waste and
Scrap
It contains separate
provisions for Waste and
Scrap.
It does not contain separate
provisions for it.
7) Scope of
definition/Scope of scheme
for Capital goods.
Narrow definition of Capital
goods.
Widened definition of
Capital goods.
8) Credit on Capital goodsCredit on capital goods can
be taken immediately .
It has to be taken in two
yearly installments of 50%
each.
9) Credit availability Credit can be availed only
on duplicate copy of
invoice.
CENVAT can be availed on
any copy of Invoice.
10) Installation of Capital
goods
With regard to capital
goods, credit can be
availed only if the capital
goods are installed and
ready to put into use.
No such condition exists in
CENVAT.