12 April 2010
In India, an excise tax is levied on the manufacturer of goods when those goods leave the place of manufacture. Formerly called the Central Excise Duty, this tax is now known as the Central Value Added Tax (CENVAT). Manufacturers may offset duty paid on materials used in the manufacturing process by using that duty as a credit against excise tax through a process known as Central Value Added Tax Credit (CENVAT Credit). The offsetting process was formerly known as Modified Value Added Tax (MODVAT).
MODVAT was replaced by CENVAT w.e.f. 1.4.2000. Principally, there is no difference between CENVAT and earlier MODVAT.
MODVAT contained separate provisions for capital goods, while CENVAT rules combine provisions in respect of capital goods and inputs.
MODVAT required submission of declarations in respect of details of inputs and capital goods. CENVAT does not require any such declaration.
VAT is the indirect tax on the consumption of the goods, paid by its original producers upon the change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the value of the goods, added by the transferor. It is the tax in relation to the difference of the value added by the transferor and not just a profit.
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