CENVATCENVAT

VATVAT““Value added tax “means that the tax is Value added tax “means that the tax is

payable only on value added to payable only on value added to commodities and on the services commodities and on the services

rendered. A comprehensive form of VAT rendered. A comprehensive form of VAT covers the value added at all three covers the value added at all three

levels ,that is levels ,that is manufacturing ,wholesaling and manufacturing ,wholesaling and

retailing.retailing.

CASCADING EFFECTCASCADING EFFECTRaw material passes through various Raw material passes through various

stages and processes till it reaches the stages and processes till it reaches the ultimate stage. i.e .final product. ultimate stage. i.e .final product.

Thus ,output of first manufacturer becomes Thus ,output of first manufacturer becomes input for second manufacturer ,who carries input for second manufacturer ,who carries

out further processing and supplies it to out further processing and supplies it to third manufacturer .This process continues third manufacturer .This process continues till a final product emerges .This product till a final product emerges .This product

then goes to the distributor/wholesaler who then goes to the distributor/wholesaler who sells it to retailer and then it reaches the sells it to retailer and then it reaches the ultimate consumer .If a tax is based on ultimate consumer .If a tax is based on selling price of product ,the tax burden selling price of product ,the tax burden goes on increasing as raw material and goes on increasing as raw material and final product passes from one stage to final product passes from one stage to

another. another.

DIFFERENCE B/W MODVAT DIFFERENCE B/W MODVAT /CENVAT/CENVAT

MODVAT contained separate MODVAT contained separate provisions for capital goods.provisions for capital goods.

It required submission of It required submission of declaration in respect of details declaration in respect of details of inputs & capital goods.of inputs & capital goods.

MODVAT prescribed statutory MODVAT prescribed statutory register RG23a and RG 23C.register RG23a and RG 23C.

MODVAT contained separate MODVAT contained separate provisions for waste & scrap.provisions for waste & scrap.

In MODVAT inputs were required In MODVAT inputs were required to be sent for job work on to be sent for job work on payments of 10% duty,payments of 10% duty,

MODVAT could be availed only MODVAT could be availed only on duplicate copy of invoice.on duplicate copy of invoice.

MODVAT contained provision MODVAT contained provision that only paying documents will that only paying documents will be valid only for 6 months.be valid only for 6 months.

In MODVAT ,credit on capital In MODVAT ,credit on capital goods could be taken goods could be taken immediately.immediately.

MODVAT required installation of MODVAT required installation of capital goods for availing creditcapital goods for availing credit..

CENVAT rules combine provisions in CENVAT rules combine provisions in respect of capital goods & inputs.respect of capital goods & inputs.

CENVAT does not require any such CENVAT does not require any such declaration.declaration.

Such register are not required Such register are not required under CENVAT, under CENVAT,

but records have to be maintain but records have to be maintain which require all information as was which require all information as was required those registers.required those registers.

CENVAT does not contain separate CENVAT does not contain separate provisions for waste & scrap .provisions for waste & scrap .

There is no such provisions in There is no such provisions in CENVAT.CENVAT.

CENVAT can be availed on any copy CENVAT can be availed on any copy of invoice.of invoice.

CENVAT does not contain any such CENVAT does not contain any such restriction .restriction .

In CENVAT it has to be taken in two In CENVAT it has to be taken in two yearly installments of 50%each.yearly installments of 50%each.

This requirement has not been This requirement has not been specified in CENVAT. specified in CENVAT.

EXCISE TAX is levied on the manufacturer of EXCISE TAX is levied on the manufacturer of goods when those goods leave the place of goods when those goods leave the place of manufacture formally called the CENTRAL EXCISE manufacture formally called the CENTRAL EXCISE DUTY ,this tax is now known as CENTRAL VALUE DUTY ,this tax is now known as CENTRAL VALUE ADDED TAX .{CENVAT} Manufactures may offset ADDED TAX .{CENVAT} Manufactures may offset duty paid on materials used in manufacturing duty paid on materials used in manufacturing process by using that duty as a credit against process by using that duty as a credit against excise tax through a process known as CENTRAL excise tax through a process known as CENTRAL VALUE ADDED TAX CREDIT .The offsetting VALUE ADDED TAX CREDIT .The offsetting process was formerly known as modified value process was formerly known as modified value added tax {MODVAT}.added tax {MODVAT}.MODVAT was replaced by CENVAT w.e.f. MODVAT was replaced by CENVAT w.e.f. 1.4.2000.1.4.2000.

CENVAT CENVAT CREDIT CREDIT

RULES, 2004RULES, 2004

RULE 2 : DEFINITIONSRULE 2 : DEFINITIONS•CAPITAL GOODS means the following goods:1.All goods falling under chapter 82,84,85,902.Components , spares and accessories3.Moulds and dies4.Refractories and refractory materials5.Tubes ,pipes and fittings thereof6.Pollution control equipments7.Storage tank above goods can be used:-I.In the factory of the manufacturer of final productsII.Outside factory for generation of electricity for captive consumption.

• EXEMPTED GOODS means goods exempted from whole of the duty and includes goods which are chargeable to ‘nil’ rate of duty.

• EXEMPTED SERVICES means taxable services which are exempted from the whole of the service tax.

•FINAL PRODUCTS means excisable goods manufactured or produced from inputs or using input services.

•FIRST STAGE DEALER means a dealer who purchases goods directly from 1.the manufacturer or from depot or from premises of the consignment agent or from any other premises.2.an importer or from the depot of an importer or from the premises of consignment agent of importer.

• INPUT meansI. All goods used in the factory by manufacturer for

manufacturing final productII. Any goods including accessories the value of which

is included in the value of final productIII. All goods used for generation of electricity for

captive useIV. All goods used for providing output service

excluding – LSD(low speed diesel) , HSD(High speed diesel) etc.

• INPUT SERVICE means any service-I. Used by a provider of taxable service for providing

on output service II. Used by a manufacturer whether directly or

indirectly , in or in relation to the manufacture of final products and clearance of final products up to the place of removals and includes services like advertisement or sales promotion market research , accounting, auditing , financing ,recruitment and quality control , legal services , etc.

RULE 3 : AVAILMENT OF RULE 3 : AVAILMENT OF CENVAT CREDITCENVAT CREDIT

A manufacturer/service provider can take credit of :i.Basic excise dutyii.Special excise dutyiii.The additional duty of excise on textile and textile articlesiv.The additional duty of excise on goods of special importancev.National calamity contingent dutyvi.Education cess on excise dutyvii.Countervailing duty of custom dutyviii.Service tax.

RULE 4: CONDITIONS FOR RULE 4: CONDITIONS FOR ALLOWING CENVAT CREDITALLOWING CENVAT CREDIT

The CENVAT CREDIT on inputs may be taken immediately on The CENVAT CREDIT on inputs may be taken immediately on receipt of the inputs in user /manufacturer is factory for receipt of the inputs in user /manufacturer is factory for manufacturing.manufacturing.

CENVAT CREDIT on capital goods is taken 50%in first year i.e. year CENVAT CREDIT on capital goods is taken 50%in first year i.e. year of acquisition of capital goods while balance is utilised in the of acquisition of capital goods while balance is utilised in the subsequent years. However w.e.f.1.4.2010 the SMALL SCALE subsequent years. However w.e.f.1.4.2010 the SMALL SCALE UNITS are allowed to take full CENVAT CREDIT for capital good in UNITS are allowed to take full CENVAT CREDIT for capital good in one installment in the year of acquisition .The credit on capital one installment in the year of acquisition .The credit on capital good is spare parts can be taken only at the unit where the capital good is spare parts can be taken only at the unit where the capital goods are used.goods are used.

CENVAT CREDIT is allowed to a manufacturer even if the goods are CENVAT CREDIT is allowed to a manufacturer even if the goods are acquired by him on lease ,hire purchase or loan agreement.acquired by him on lease ,hire purchase or loan agreement.

CENVAT CREDIT will not be allowed on that part of value of capital CENVAT CREDIT will not be allowed on that part of value of capital goods that represents depreciation.goods that represents depreciation.

CREDIT is allowed even if the input /capital goods are sent to the CREDIT is allowed even if the input /capital goods are sent to the place of job worker for further place of job worker for further processing ,testing ,repair ,reconditioning etc. and goods so send processing ,testing ,repair ,reconditioning etc. and goods so send must have been received back within 180 days.must have been received back within 180 days.

•CENVAT CREDIT is also allowed on jigs ,fixtures ,moulds & dies sent to a job worker for the production of goods on behalf of manufacturer.•Job worker can receive duty paid inputs directly from supplier except in case of EXPORT ORIENTED UNITS. On removal of processed goods from job worker work place to job worker need not to pay duty at such stage.•Definition of capital goods specifically excludes from its scope the equipments is not allowed.•The commissioner of central excise ,having jurisdiction over the factory of manufacturer of final products who has sent the input or partially processed input outside his factory to a job worker ,may by an order [order valid for a financial year } allow final product to be removed from the premises of job worker.

RULE 5: REFUND OF RULE 5: REFUND OF CENVAT CREDITCENVAT CREDIT

For export under bond ,Cenvat credit For export under bond ,Cenvat credit on input or input services can be on input or input services can be utilised for payment of duty on any utilised for payment of duty on any final product cleared for home final product cleared for home consumption or for export on payment consumption or for export on payment of duty on final product or service tax. of duty on final product or service tax. Where for any reason such adjustment Where for any reason such adjustment is not possible ,the manufacturer shall is not possible ,the manufacturer shall be allowed refund of such amount. be allowed refund of such amount.

Rule 6: Obligation of Rule 6: Obligation of manufacturer of dutiable manufacturer of dutiable

and exempted goodsand exempted goods As per Rule 6{1},the CENVAT CREDIT shall not be allowed on As per Rule 6{1},the CENVAT CREDIT shall not be allowed on

such quantity of inputs which is used in the manufacture of such quantity of inputs which is used in the manufacture of exempted goods .For this purpose the manufacture [in case of exempted goods .For this purpose the manufacture [in case of inputs ]or output service provider [in case of service ]may inputs ]or output service provider [in case of service ]may follow either of following 2 methods;follow either of following 2 methods;

Maintain Separate A/C; The manufacturer shall maintain Maintain Separate A/C; The manufacturer shall maintain separate accounts for different goods.separate accounts for different goods.

Not to maintain separate A/C; The manufacturer of goods Not to maintain separate A/C; The manufacturer of goods opting not to maintain separate account ,shall have to reverse opting not to maintain separate account ,shall have to reverse the CENVAT CREDIT in following manner;the CENVAT CREDIT in following manner;

Option 1; 10% of value of exempted goods or 8%of value of Option 1; 10% of value of exempted goods or 8%of value of exempted services.exempted services.

Option 2; pay amount equal to the CENVAT CREDIT attributable Option 2; pay amount equal to the CENVAT CREDIT attributable to the inputs used in manufacture of exempted goods . to the inputs used in manufacture of exempted goods .

RULE 8RULE 8

It provides that the commissioner of Central Excise It provides that the commissioner of Central Excise can permit the inputs in respect of which the can permit the inputs in respect of which the CENVAT CREDIT has been taken to be stored CENVAT CREDIT has been taken to be stored

outside the factory of the manufacturer.outside the factory of the manufacturer.

RULE 9: DOCUMENTS AND RULE 9: DOCUMENTS AND ACCOUNTSACCOUNTS

Documents & accounts used /maintained in Documents & accounts used /maintained in CENVAT CENVAT

An invoice issued by a manufacturer ,an An invoice issued by a manufacturer ,an importer ,a first stage dealer ,a importer ,a first stage dealer ,a consignment agent .consignment agent .

A supplementary invoice.A supplementary invoice. A certificate issued by custom appraiser .A certificate issued by custom appraiser . A challan evidencing the payment of service A challan evidencing the payment of service

tax. tax. A bill of entry .A bill of entry .

RULE 10 : TRANSFER RULE 10 : TRANSFER OF CENVAT CREDITOF CENVAT CREDIT

If a manufacturer shifts his factory to If a manufacturer shifts his factory to another site or the factory is another site or the factory is

transferred on account of charge in transferred on account of charge in ownership or on account of ownership or on account of

sale ,merger etc then he shall be sale ,merger etc then he shall be allowed to transfer CENVAT CREDIT allowed to transfer CENVAT CREDIT lying unutilised ,only if the stock of lying unutilised ,only if the stock of

inputs are also transferred. inputs are also transferred.

RULE 14 : RECOVERY RULE 14 : RECOVERY OF CENVAT CREDITOF CENVAT CREDIT

Where the CENVAT CREDIT has Where the CENVAT CREDIT has been taken or utilised wrongly ,the been taken or utilised wrongly ,the same along with interest shall be same along with interest shall be

recovered from manufacturer recovered from manufacturer under provisions of section under provisions of section

11A,11AA &11AB11A,11AA &11AB..

RULE 15 : RULE 15 : CONFISCATION AND CONFISCATION AND

PENALTYPENALTY

If a person take wrong CENVAT If a person take wrong CENVAT CREDIT then his goods shall be CREDIT then his goods shall be

liable to confiscation or a penalty liable to confiscation or a penalty can be imposed that too should can be imposed that too should not exceed the either amount of not exceed the either amount of

duty or ten thousand duty or ten thousand rupees ,whichever is greater.rupees ,whichever is greater.

Rule 15A : GENERAL Rule 15A : GENERAL PENALTYPENALTY

A general penalty up to Rs.5000 can be A general penalty up to Rs.5000 can be imposed in case of contravention of any of imposed in case of contravention of any of

the provision of CENVAT CREDIT RULES 2004, the provision of CENVAT CREDIT RULES 2004, for which no specific penal provision exists. for which no specific penal provision exists.

CENVAT RETURNSCENVAT RETURNSManufactuManufacturer of final rer of final products.products.

monthmonth By 10By 10thth of next of next month.month.

Provider of Provider of output output service.service.

Half yearly Half yearly return return

By the end of By the end of the month the month following the following the particular half particular half year.year.

First stage First stage or second or second stage stage dealer,dealer,

quarterlyquarterly By 15By 15thth of next of next month after the month after the end of the end of the quarter.quarter.