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Q.

What is MODVAT AND CENVAT ??

Tags: modvat, cenvat
30 May '07 03:07 pm
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Answers (2)

1.

MODVAT can be understood from following example

Suppose you are manufacturer of FANS. For this you may require to purchase following inputs
Blades
Copper
Wires etc.
When you purchase, these raw materials , you will have to pay excise duties on those items
When , you finally produce FANS, the Govt again impose EXCISE duty,so there is double taxation. To overcome such anomaly, the govt framed MODVAT rules under which it returns by giving CREDIT to manufacture re ,the excise duty on the raw materials--in this case Bade,Copper , wires etc.
This is modvat rule. That is Govt only taxes the additional value of the Gmanufactured products.
Answered by SONIA, 18 May '11 12:55 pm

 
  
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2.

Modvat stands for "Modified Value Added Tax". It is a scheme for allowing relief to final manufacturers on the excise duty borne by their suppliers in respect of goods manufactured by them. eg ABC Ltd is a manufacturer and it purchases certain components from PQR Ltd for use in manufacture. POR Ltd would have paid excise duty on components manufactured by it and it would have recovered that excise duty in its sales price from ABC Ltd. Now, ABC Ltd has to pay excise duty on toys manufactured by it as well as bear the excise duty paid by its supplier, PQR Ltd. This amounts to multiple taxation. Modvat is a scheme where ABC Ltd can take credit for excise duty paid by PQR Ltd so that lower excise duty is payable by ABC Ltd.
Cenvat (Central Value Added Tax) has its origin in the system of VAT (Value Added Tax), which is common in West European Countries. Concept of VAT was developed to avoid cascading effect of taxes. VAT was found to be a very good and transparent tax collection system, ...more
Answered by rakhi gaba, 30 May '07 03:24 pm

 
  
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