CENVAT related services

Cenvat stands for Central Value Added Tax has its origin in the system of VAT Value Added Tax, which is common in West European Countries. The concept of VAT was developed to avoid the cascading effect of taxes or in the services. The VAT was found to be a very good and transparent tax collection system, ensures better tax compliance, which reduces tax evasion, and increases tax revenue.

Modvat stands for the modified value-added tax was introduced in India in 1986 Modvat was re-named as Cenvat w.e.f. 1-4-2000. The system was termed as Modvat, as it was restricted up to manufacturing credit and stage of only excise duty paid on manufacturing products and corresponding CVD paid on imported goods was available.

The VAT was not extended to sales tax, as sales tax is under the jurisdiction of State Governments or system. State Governments or system have agreed to introduce sales tax VAT and it is likely to be introduced from April 2005. Haryana Government has introduced sales tax VAT in April 2004 and the experience is reported to be good of the public.

CENVAT Credit Rules:

  • Area of implementation relates to the title and the date of implementation of CENVAT.
  • Contains the various definitions required to implement and understand CENVAT.
  • Has information on CENVAT credit which is available to manufacturers system.
  • Mentions how eligible manufacturers can claim CENVAT credit system.
  • Contains provisions regarding the refund of credit and are further subdivided into Rule 5A.
  • States the obligations of manufacturers in lieu of services and goods which are exempted.
  • Contains provisions regarding the distribution of CENVAT credit system.
  • Relates to storage of inputs by a manufacturer department.
  • Lists the accounts and documents which should be maintained by manufacturers.
  • Pertains to transfer of credit system.
  • Deals with certain transitional provisions system.
  • Contains information about goods manufactured in certain Indian states and is subdivided into 12A and 12AA system.
  • Mentions the powers available with the central government when it comes to notifying goods to the customer.
  • Has provisions for recovery of CENVAT credit system which was wrongly availed.
  • Lists the penalties applicable system.
  • Contains certain additional provisions related to CENVAT system.