Introduction on CENVAT Credit :

The powers conferred on the Central Government under clause (xviaa) and clause (xvia) of section 37(2) of the Central Excise Act, 1944 provide for credit of Central Value Added Tax (CENVAT). Section 37(2) (xvia) empowers the Central Government to make rules to provide for the credit of duty paid or deemed to have been paid on the goods used in or in relation to manufacture of excisable goods. Section 37(2) (xviaa) empowers Central Government to make rules to provide for credit of service tax leviable under Chapter V of the Finance Act, 1994, paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods.

CENVAT was initially introduced as MODVAT in the year 1986 whereby the manufacturers could avail credit of duty paid on inputs used in or in relation to manufacture of the final products for being set off against the duty payable on the final products. Later on the scheme was extended to capital goods also. In the year 2001, CENVAT Credit Rules, 2001 were
introduced which were superseded by the CENVAT Credit Rules, 2002. Credit of service tax paid on input services was introduced for the first time in the year 2002.

CENVAT Credit Rules, 2004: On 10.09.2004, CENVAT Credit Rules, 2004 were notified to replace the erstwhile CENVAT Credit Rules, 2002 and Service Tax Credit Rules, 2002. These rules have integrated the credit of goods and services. In other words, duties of excise paid on inputs/capital goods and service tax paid on input services can be adjusted against a manufacturer’s excise duty liability or a service provider’s service tax liability.

The CENVAT Credit Rules, 2004 extend to the whole of India. However, the provisions of these rules in relation to availment and utilization of credit of service tax do not apply to the State of Jammu and Kashmir as service tax law is not applicable to Jammu & Kashmir. The rules cover all the three categories, namely manufacturers, service providers and manufacturers-cum-service providers.