Context:
Supreme Court recently allowed telecom companies to claim CENVAT credit for the installation of mobile towers and shelters.
CENVAT Credit:
- Introduced as a modification to the Modified Value Added Tax (MODVAT) system.
- Purpose – It allows manufacturers and service providers to claim tax credits on excise duty or additional duties paid on input services and inputs, thereby preventing double taxation and simplifying the tax system.
- Eligibility –
- Manufacturers – Can claim CENVAT credit on excise duty paid on inputs and capital goods used in the manufacturing process.
- Service Providers – Can claim CENVAT credit on service tax paid on input services used to provide output services.
- Types of Goods and Services Covered –
- Inputs – All goods used in or in relation to the manufacture of final products, whether directly or indirectly.
- Capital Goods – Includes machinery, equipment, and other goods used in the production process.
- Input Services – Services used by a manufacturer or service provider in the course of business.
- Utilization of Credit:
- Credit can be used to pay excise duty on final products.
- Credit can be used to pay service tax on output services.
- Significance –
- Prevention of Double Taxation – Ensures that tax is levied only on the value addition at each stage of production, eliminating the cascading effect of taxes.
- Tax Compliance – Encourages businesses to comply with tax regulations by allowing them to claim credits for taxes already paid.
- Business Growth – Incentivizes investment in modern technology and capital goods, promoting productivity and growth.
- Simplification – Simplifies the tax structure for manufacturers and service providers, reducing the overall tax burden.
CENVAT Credit Rules, 2004:
- Defines capital goods eligible for CENVAT credit.
- Defines inputs eligible for CENVAT credit, excluding certain fuels like light diesel oil, high-speed diesel oil, and motor spirit (petrol).
Source: The Hindu
Previous Year Question
Which one of the following is not a feature of “Value Added Tax”?
[UPSC Civil Service Exam – 2011 Prelims]
(a) It is a multi-point destination-based system of tax.
(b) It is a tax levied on value addition at each stage of transaction in the production distribution chain.
(c) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer.
(d) It is basically a subject of the Central Government, and the State Governments are only a facilitator for its successful implementation.
Answer: (d)