The Supreme Court has allowed telecom companies to claim Central Value Added Tax (CENVAT) credit for the installation of mobile towers and pre-fabricated buildings (PFBs), which are subject to excise duties.
About CENVAT Credit (Central Value Added Tax Credit)
- It is a mechanism that allows manufacturers and service providers to claim tax credits on excise duty or additional duties paid on input services and input.
- This process simplifies tax and reduces burden on businesses.
- It was introduced in 2004 under “The CENVAT Credit Rules”.
- Its main aim was to modify the Previous system Modified Value Added Tax, or MODVAT.
- Benefits
- Preventional of double taxation: Removes the cascading effect of taxes by allowing credits for taxes already paid at earlier stages.
- Promotes Tax compliance: Business can claim CENVAT credit only if input supplier has paid the applicable taxes to the government.
- Encourages business growth: Incentivise investment in modern technology and capital goods to improve productivity.
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- Applicability of CENVAT Credit
- Excise Duty on Final Products: For manufacturer and producer of taxable goods.
- Service Tax on Output Services: For service providers offering taxable or exempted services.
- Inputs and Capital Goods: Applicable for partially processed goods which is used during production.
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