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What is Central Value-added Tax and how it is configured?

What is CENVAT (Central Value-added Tax) and how it is configured?

The CENVAT means, Tax on Value Addition on the goods manufactured according to Central Excise & Customs Act Definition. Here the value addition means the Additional Services / activities etc. which converts the Input in to Output, and the output is newly recognized as per the this act as Excisable goods.

Excise duty can be understood by Utpadan Shulk. Utpadan means 'production' and shulk means tax. Whenever item changes its shape or size due to some value addition, it implies production, and therefore that item which is produced will attract excise duty.

Indian tax Central Excise Duty (BED): It is called as Basic Excise Duty. Every manufacturer is liable to pay the excise duty in various kinds namely Basic Excise Duty, Special Excise Duty, Additional Excise Duty etc.,

For example, consider a product (finished goods) which is reached to a customer (end user), how many manufacturing activities are done. So to reduce the tax burden of the end user, the Govt. of India introduce the MODVAT scheme which is now called CENVAT scheme.

Based on this, if any manufacturer purchased a material, which is duty paid, and if it is used for his further manufacturing activity, he can avail this as credit in his book based on the Central Excise Invoice. At the time of selling his manufactured goods, he is liable to pay the excise duty. He can adjust the credit which he has taken into his book and pay the rest.

For example:

CENVAT availed at the time purchased various goods Rs.20,000 (Excise duty alone)
CENVAT payable for his product at the time sales Rs.25,000

Manufacturer will pay only Rs.5000 through cash deposit in PLA.

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