9 (Indirect taxes) How is Input Credit availed (Hindi) Video Link - https://youtube/watch?v=RqoXwd7ZvVU Solution : By Amlan Dutta There are a few times when english can sound confusing .There cant be e better example than this topic .But Anyways , lets face the monster right away , Its a very simple concept and deals with taking credit of taxes paid towards input material cost . When credit is taken for the taxes paid against excise and service , the same is called CENVAT credit The credit when taken for input taxes paid against VAT is called as VAT credit Lets look at a simple example to clear the subject , Say , i buy wood from jalandhar manufacturer @ 100 Rs and have to pay excise @ 12.36 %(Including cess ) , VAT @ 5 %i.e 5 Rs ..etc then what i get is credits ...i.e i now have a credit of taxes paidi.e 12.36 Rswhich i can later use to set of against taxes collected from the sale of final product ... (1) CENVAT credit For example , of the purchased input (bat) @ 100 Rs , made Cricket bat out of it and increased value to 200 Rs ....now when i sell it , i need to deposit with the govt tax on the final value of goods sold ... So , on the final product i.e wooden bat , i am now expected by the revenue to collect 12.36 % of 200 Rsi.e 25.72 Rs and deposit it with the government .. But since i have credits avaible with me (i.e i have already paid 12.36 Rs ) i just need to pay further balance (25.72-12.36 Rs ) =12.36 Rs to the revenue .This process is called setting of the credit (CENVAT )available .. The buyer who pays 25.72 to me , in case he further uses the sold good as input and makes something of it and sells it at 1000 Rs , then he can also claim CENVAT credit How ? well he paid excise to us 25.72 Rs ,so he has credits to the tune of 25.72 Rs ...now when he sells the final goods at 1000 Rs , he wil have to collect 12.36 % excise i.e 123.6 Rs and deposit tro revenue .. But now since he has credits available with him for 25.72 Rs paid , he will have to pay only the balance (i.e 123.6 - 25.72)= 97 Rs (Approx)... The process keeps continuing every time the seller passes on the credit and the buyer uses it to manufacture something and then sell it after value addition (Note a few important things that CENVAT is with reference to only excise and service tax ( and not CST/VAT ) Note again (1) if the Cenvat credit cannot be realised in the present year , one can file return and claim refund (2)Cenvat credit taken need not be set of in one to one basis i.e what this means is that i can set of credit (taxes paid on total input ) against collection of taxes against sale of final product(sum total) (3) Typically , purchaser always shall insist for CENVAT credit from buyer which means that if there are further stages of production for the buyer itself , then he can claim credit himself against the taxed paid later against taxes collected against sale of the processed good (2) VAT credit Now , we have paid for the input wood 5 rs VAT Now , when do value addition and sell the bat for 200 Rs within the state , we are supposed to collect 5 % VAT on this total sale value and deposit that to the revenue But here , since i have already paid 5 Rs towards the input , i can take credit of that and of the 10 Rs collected after sale of the final good , i can deposit only 5 Rs of that with the revenue since 5 rs has already been deposited earlier This is called VAT credit and is against sales of the Good Note that Sales tax credit is not available in terms of interstate sales i.e( CST ) Hope This helps , Amlan Dutta
Posted on: Sun, 06 Jul 2014 07:52:02 +0000
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