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Central Value Added Tax (CENVAT)

Central Value Added Tax (CENVAT)


  • The Central Value Added Tax (CENVAT) is a part of India’s central excise framework.
  • It reduces the consumer’s tax burden when purchasing any product and offers a transparent picture of tax liabilities at every stage of production.

What is CENVAT?

  • CENVAT or Central Value Added Tax is a modification of the previously functioning MODVAT (Modified Value Added Tax), and is a part of the central excise framework of the country.
  • Central Value Added Tax or CENVAT allows a manufacturer to utilise the credit of excise duty/additional duty paid for the procurement of input services to pay-off the excise duty on his/her final product or output services.
  • During the course of manufacture of final products, the raw materials travel through various stages of production, wherein a duty is levied on every value-added at each stage.
  • CENVAT, therefore, eliminates this double taxation, thereby simplifying taxation for manufacturers, and consumers at large.
  • In 2004, The government established ‘The CENVAT Credit Rules’ in order to implement CENVAT across the country and offer Indian manufacturers of final products certain tax credits on the excise duty payable by them.

CENVAT credit

  • CENVAT credit refers to the set-off available to manufacturers if they utilise some specific inputs for manufacturing their products.
  • A manufacturer can claim CENVAT credit on the following cases:
    • Excise duty on a final product: For manufacturers and producers of final products
    • Service tax on output services: For providers of taxable and exempted services
    • Inputs and capital goods: If these goods are being partially processed

CENVAT Credit Rules

  • The Union Government made changes to the old CENVAT Credit Rules of 2002, putting in place new CENVAT Credit Rules by exercising their powers under the Central Excise Act of 1944.
  • A total of 16 rules are mentioned under this provision, each one containing information relevant to a certain topic.
  • Here is a brief overview of the rules mentioned.
    • Rule 1 relates to the title, area of implementation and the date of implementation of CENVAT
    • Rule 2 contains the various definitions required to understand and implement CENVAT
    • Rule 3 has information on CENVAT credit which is available to manufacturers
    • Rule 4 mentions how eligible manufacturers can claim CENVAT credit
    • Rule 5 contains provisions regarding the refund of credit and is further subdivided into Rule 5A
    • Rule 6 states the obligations of manufacturers in lieu of goods and services which are exempted
    • Rule 7 contains provisions regarding the distribution of CENVAT credit
    • Rule 8 relates to storage of inputs by a manufacturer
    • Rule 9 lists the documents and accounts which should be maintained by manufacturers
    • Rule 10 pertains to transfer of credit                                    Central Value Added Tax (CENVAT)
    • Rule 11 deals with certain transitional provisions
    • Rule 12 contains information about goods manufactured in certain Indian states and is subdivided into 12A and 12AA
    • Rule 13 mentions the powers available with the central government when it comes to notifying goods
    • Rule 14 has provisions for recovery of CENVAT credit which was wrongly availed
    • Rule 15 lists the penalties applicable
    • Rule 16 contains certain additional provisions related to CENVAT


Mussoorie Times

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