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The CENVAT SCHEME is designed to reduce the cascading effect of indirect taxes on final products. This is a more liberal and extensive scheme than the erstwhile MODVAT SCHEME with most goods brought within its ambit and no declarations or statutory records prescribed

The Scheme allows instant CENVAT Credit to be taken of duties such as Excise Duty, SED, ADE and CVD paid on inputs and capital goods received in a factory for the manufacture of any dutiable final product (except matches). This credit can be utilised to pay Excise duty on any final product. All raw materials or inputs are covered except Light Diesel oil, High Speed Diesel and Motor Spirit. Similarly, capital goods including pollution control equipment, components, spares, accessories, moulds and dies and paints, packaging material and greases/coolants are eligible goods on which credit can be availed.

Credit can be availed immediately on receipt of eligible, duty paid goods in the factory. There is no need for the manufacturer to file any declaration or obtain any permission.

In the case of Capital Goods, only 50% of the duty paid on the goods can be availed of in the same financial year; the remaining can be availed in the subsequent financial years provided the goods are still in use (except for spares and components). Further, no depreciation should be claimed by the manufacturer under Sec.32 of the Income Tax Act, 1961 on that part of the value of these Capital Goods, which is equal to the duty, paid on the goods.

A manufacturer who manufactures only exempted final products is not covered under this Scheme. However, the Scheme allows those who manufacture both dutiable and exempted final products in the same factory to avail of its benefits subject to certain conditions viz., maintenance of separate records in respect of inputs used to manufacture exempted products or payment of 8% of the total price (excluding taxes) of the exempted final products or in the case of a few specified items, on reversal of the credit availed. Similarly, credit can be availed on Capital Goods if not used exclusively for the manufacture of exempted final products.

The Scheme also, inter alia, provides the following facilities:-

  • Removal of inputs or capital goods as such on payment of an amount equal to the credit availed on such goods.
  • Removal of goods to job-workers for processing, testing, reconditioning or any other purpose provided that the goods are received back within 180 days or are removed from the premises of the job worker if permitted by the Commissioner of Central Excise
  • Refund of credit accumulated due to export under bond of the final products is permissible
  • Unutilised CENVAT Credit can be transferred on account of shifting of a factory to another site or due to change in ownership by sale, merger, amalgamation, lease or transfer to a joint venture wherein liabilities are also transferred; and
  • A special dispensation has been made in the case of goods manufactured in specified areas of the North East.

No statutory records have to be maintained or duty-paying documents submitted to the department on a periodic basis.

The manufacturer should take reasonable steps to ensure that the appropriate duty has been paid on the inputs or capital goods on which credit is availed, as indicated in the documents accompanying the goods. These documents are prescribed in Rule 7. Similarly, the manufacturer shall maintain his own records regarding receipt, disposal, consumption and inventory of the goods containing relevant information. The burden of proof regarding admissibility of the CENVAT Credit lies upon the manufacturer.

If CENVAT Credit is taken or utilised wrongly, the same, along with interest, will be recovered.

A simple monthly return in a prescribed format has to be filed by the 10th of the month following the month during which credit was availed. Manufacturers availing of the Small Scale exemptions, based on value or quantity of clearances during a financial year, need to file this return only on a quarterly basis.

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