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cenvat credit

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 eshaan banerjee asked over 3 years ago

I am unable to understand the meaning of CENVAT credit. Please explain

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3 Answers
Open uri20170510 32134 ng4pv?1494421709 SONIYA answered over 3 years ago

**The aim of my writing is to only make understand the meaning of cenvat , so I am just discussing the basics .** **CENVAT means Central Value Added Tax.** **Let understand Cenvat credit with an example,** suppose A bought a raw material @ of Rs 110/- which includes duty of Rs 10/- , to convert the raw material to Finished goods he has to incur conversion cost of say Rs 40/- and sells his good for Rs 160/- after adding the profit margin of Rs 20/- he charged 10% duty on selling price which came to Rs 16/-. Duty Paid on Purchase made = Rs 10/- Duty Collected on Sales Made = Rs 16/- Selling price inclusive of duty = Rs 176/- ( 160+16) The Amount which Mr A has to pay to Account of Government will be Rs 6/- only, i.e. 16-10 =6. **The credit of duty paid which Mr A took to discharge his liability of duty collected is only called Cenvat credit.** Only because Mr A will get credit of Rs 10/- which is duty paid on the raw material purchases, he did not include Rs 10/- in determining his selling price. If this credit would not have been given to him the selling price would have raised to Rs 170/- and again 10% duty on selling price will come to Rs 17/- In this scenario Duty Paid on Purchase made = Rs 10/- Duty Collected on Sales Made = Rs 16/- Selling price inclusive of duty = Rs 187/- (170+17) The Amount which Mr A has to pay to Account of Government will be Rs 7/- only, i.e. 17-10 =7. Therefore the concept of cenvat credit is to avoid duty on duty burden of which is ultimately borne by final consumer , because of giving cenvat credit of Rs 10/- to Mr A the selling price of goods get reduced from Rs 187/- to 176/- , the benefit to consumer is of Rs 11. **Therefore the whole idea behind Cenvat Credit is to avoid Cascading effect of taxes, i.e. tax on tax.**

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Data?1494421730 rohit awasthi answered over 3 years ago

as per ca final indirect study material Cenvat Credit is a scheme where the manufacturers or the output service providers are allowed a set off of the taxes paid on the inputs or the input services that are used while manufacturing the final products or providing the output service. Cenvat Credit can be availed on capital goods also. But the credit should be taken in installments. 50% of the credit in the Financial year in which the goods are received and the remaining 50% in the next financial year or subsequent years. All goods, except light diesel oil, high speed diesel oil and motor spirit (petrol) which are used in or in relation to the manufacture of final products are eligible for credit

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Open uri20170510 32134 1ue0f38?1494421710 rohit agarwal answered over 3 years ago

Hi Eshaan, As you said you are unable to understand the meaning of CENVAT credit. I am trying to answer your query by Q & Ans as follows: First of all, Let us understand What is CENVAT Credit? Cenvat Credit is a scheme where the manufacturers or the output service providers are allowed a set off of the taxes paid on the inputs or the input services that are used while manufacturing the final products or providing the output service. How does it work? In the manufacture of product X, if raw material A and raw material B are used, the manufacturer is allowed to take credit of the Central Excise duty paid on the raw materials A and B used in the manufacture of the final product X. He is allowed to use this credit while paying duty on the final product, X For detailed and indepth knowledge u have to refer Cenvat Credit Rules, but before that you should study the details about excise duty and other related concepts. Regards

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