Modvat on excise

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 May 2013 pls provide the detail of rule or section of excise in which consignee can take modvat benefit of excise in E1 sale and one more thing if dealer has some profit margin and raise commercial invoice on amount more than manufacturer's invoice then should he charge cst on excess amount ??

Arun Kumar Singh

Arun Kumar Singh (Expert)
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24 May 2013 If consignee is registered manufacturer and pay the excise duty on final product then they can avail the cenvat credit on input. Dealer will pay the CST on transaction value i.e. purchase value plus profit.

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Querist : Anonymous

Querist : Anonymous (Querist)

24 May 2013 thanks for your reply, could you please provide me the section/rule under which dealer has to charge CST and consignee(registered manufacturer) can take modvat input ??

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 Certainly! The rules regarding the charging of Central Sales Tax (CST) and the eligibility for MODVAT (now known as CENVAT) credit for the consignee are governed by various provisions of the Central Sales Tax Act, 1956, and the Central Excise Act, 1944, along with their respective rules and notifications. Here's a breakdown of the relevant sections and rules:

### 1. **Central Sales Tax (CST) Provisions**

- **Section 8 of the Central Sales Tax Act, 1956:**
- **Section 8(1):** This section mandates that sales of goods, which are in the course of inter-state trade or commerce, shall be taxed only under the Central Sales Tax Act and not under any other law.
- **Section 8(2):** This section provides for the rate of CST to be levied on sales to registered dealers. It stipulates that a registered dealer can purchase goods at a reduced rate of CST (often 2%) if the sale is made to another registered dealer and a declaration is furnished.

### 2. **MODVAT/CENVAT Provisions**

- **Rule 57A to 57K of the Central Excise Rules, 1944 (as applicable before 2000):**
- These rules governed the MODVAT scheme, which allowed manufacturers to take credit for the excise duty paid on inputs used in the manufacture of final products. The rules laid out the conditions for availing of MODVAT credit.

- **Rule 3 of the CENVAT Credit Rules, 2004:**
- This rule governs the CENVAT Credit Scheme, which replaced MODVAT. It allows a manufacturer to claim credit on excise duty paid on inputs and capital goods used in the manufacture of goods.
- **Rule 3(1):** This rule specifies that a manufacturer or producer can take credit of the duty paid on inputs, capital goods, and input services used in the manufacture of final products.

### 3. **Relevant Notifications and Circulars**

- **Notification No. 4/2006-CE (NT):** This notification provides details regarding the eligibility and conditions for claiming CENVAT credit on inputs and capital goods.
- **Circular No. 692/8/2003-CX:** Issued by the CBEC (Central Board of Excise and Customs), this circular provides guidance on the issue of CENVAT credit.

### Practical Implications

- **Dealer’s Responsibility:** The dealer selling goods must charge CST on inter-state sales if the transaction qualifies under the CST Act and the rate prescribed by the Act. The CST rate applicable for sales to registered dealers is generally lower (e.g., 2% against 12.5% for unregistered dealers).

- **Consignee’s (Registered Manufacturer’s) Eligibility:** The consignee, being a registered manufacturer, can claim CENVAT credit on the CST paid (if applicable) provided the CST was paid on inputs used in the manufacture of final products. The claim must align with the conditions specified in the CENVAT Credit Rules.

### Summary

- **CST Charges:** Governed by Section 8 of the CST Act.
- **CENVAT Credit:** Governed by Rule 3 of the CENVAT Credit Rules, 2004, and applicable notifications and circulars.

To ensure compliance and accurate credit claims, it is crucial to refer to the latest notifications, circulars, and amendments in the relevant laws and rules. Consulting with a tax professional or legal advisor for specific cases is also recommended.