CENVAT(Central Value Added Tax) Credit

CENVAT is basically an input duty relief scheme under central excise designed to reimburse the user manufacturer with the duty paid on the input which he had absorbed as part of purchase price when buying the same for producing finished products. The new CENVAT scheme has been simplified with all cumbersome procedures being dispensed with.

Types of Duties for CENVAT Credit Availment

  1. The duty of excise specified in the First Schedule to the Excise Tariff Act.
  2. The duty of excise specified in the second schedule to the Excise Tariff Act, commonly known as SED.
  3. The additional duty of excise leviable under section 3 of the additional duties of excise Act, 1978 known as AED.
  4. The additional duty of excise leviable under section 3 of the Additional Duties of Excise Act, 1957 known as AED (GSI).
  5. The  National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001.
  6. The Education Cess on excisable goods leviable under section 91 read with Section 93 of the Finance Act, 2004.
  7. The additional duty of excise leviable under sction 157 of the Finance Act 2003.
  8. The Service Tax leviable under section 66 of the Finance Act.
  9. The Education Cess on taxable services leviable under section 91 read with section 95 of the Finance Act, 2004.

Input Service for CENVAT

The CENVAT scheme provides credit for service providers and manufacturers. Thus, as per the scheme, an input which is eligible for credit has been defined by the CENVAT Credit Rules as:

  1. All goods used in the factory by the manufacturer of the final product; or
  2. Any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or
  3. All goods used for generation of electricity or steam for captive use; or
  4. All goods used for providing any output service;

The following are not termed as CENVAT input as per the CENVAT Credit Rules, 2004:

  1. Construction or execution of works contract of a building or a civil structure or a part thereof;
  2. Laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service;
  3. Capital goods except when used as parts or components in the manufacture of a final product;
  4. Motor vehicles;
  5. Any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee;
  6. Any goods which have no relationship whatsoever with the manufacture of a final product.

CENVAT Input Service Credit

CENVAT Credit Rules, 2004 defines input service as any service used by a provider of service for providing a service or used by a manufacturer, whether directly or indirectly, in or in relation to the manufacturing of a final product. Some examples of input services include services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

Eligible for CENVAT Credit

Rule 3 of CENVAT Credit Rules, 2004 provides that a manufacturer or provider of output service shall be allowed to take CENVAT credit of any of the following duties paid on inputs or capital goods and service tax paid on input services:

  1. Duty of Central Excise levied in terms of First Schedule to Central Excise Tariff Act;
  2. Additional duties of excise in terms of Second Schedule to Central Excise Tariff Act;
  3. Additional excise duty under Additional Duties of Excise (Goods of Special Importance) Act, 1957( GSI) & TTA;
  4. Additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978); TTA;
  5. National Calamity Contingent Duty;
  6. Education Cess on excisable goods and the Secondary and Higher Education Cess on excisable goods;
  7. The additional duties of Customs levied in terms of Section 3 of Customs Tariff Act, (CVD) equivalent to 1-6 above;
  8. Special Additional duty of customs (SAD) levied in terms of Section 3(5) of Customs Tariff Act;
  9. Service tax paid in terms of Section 66,66A or Section 66B of Finance Act, 1994;
  10. Education Cess on taxable services and the Secondary and Higher Education Cess on taxable services.