## (IND) Working with Cenvat Credit

This chapter provides an overview of Cenvat credit and discusses how to:

- Assign percentage of Cenvat credit.

- Offset duty credit and calculate duty liability.

- Offset Cenvat credit against excise tax.

- Offset Cenvat credit against service tax.

See Also

(IND) Setting Up Country-Specific Functionality for India

(IND) Understanding Excise Tax

### Understanding Cenvat Credit

The credit that can be claimed by a manufacturer, producer of final products, or a provider of taxable services is called Cenvat credit. A Cenvat credit can be applied against both excise and service taxes for these types of items:

- Excise duty on a final product (for manufacturers or producers of final products only).

- Inputs and capital goods, if they are removed or are being partially processed.

  For these item types, you can apply the amount equal to the Cenvat credit to the tax payment.

- Service tax on any output services (for providers of taxable and exempted services only).

  For this item type, you can apply Cenvat credit if you maintain separate accounts for the receipt, consumption and inventory for the taxable service, and nontaxable services. If separate accounts are not maintained, only 20 percent of the credit can be applied for payment of service tax.

Cenvat Credit on Common Inputs

You might use common inputs in the manufacture of excisable goods as well as in the manufacture of nonexcisable goods. In some cases, you might not be able to track the issue of the common inputs based on its end use. In such circumstances, you can claim Cenvat credit on the entire consignment and can issue such inputs for the manufacture of nonexcisable. To claim Cenvat credit on the entire consignment, you must calculate the excise duty liability at 10 percent of the value of the goods, excluding sales tax .

To claim Cenvat credit:

1. Verify that the credit claimed during the procurement process are not off set.

2. Define a price adjustment so that the system calculates 10 percent on the value of the item excluding sales tax.

   The system uses the price adjustment when you sell or transfer the goods.

### Assigning Percentage of Cenvat Credit

This section provides an overview of how to assign the percentage of Cenvat credit and discusses how to assign the percentage of Cenvat credit to an item type.

#### Understanding the Assignment of the Percentage of Cenvat Credit

You use the Credit Distribution Percentage program (P75I011) to assign the percentage of Cenvat credit to an item type, such as CAP (capital goods) or INP (input). You can also use this program to:

- Identify ways in which to recover amounts for a tax type.

- Identify ways in which to recover the partial percentage of the Cenvat credit.

- Move the credits for an item type from one tax type to another.

#### Forms Used to Assign the Percentage of Cenvat Credit

Form Name | FormID | Navigation | Usage
Work With Credit Distribution Percentage | W75I011A | Excise System Setup (G75IEXC4), Credit Distribution Percentage | Review existing records for item types and their associated tax types.
Credit Distribution Percentage | W75I011B | Click Add on the Work With Credit Distribution Percentage form. | Assign the percentage of Cenvat credit to an item type. Add or update records to transfer the credit of an item type from one tax type to another.

#### Assigning the Percentage of Cenvat Credit to an Item Type

Access the Credit Distribution Percentage form.

Model Year (YYYY) | Enter the model year of the appliance in the YYYY format.
Item Type | Enter a user-defined code from UDC table 75I/EA that identifies the type of item. Examples are: AII: Account for Inputs CII: Account for Capital goods EDP: Excise Duty Payable EXA: Expense Account PLA: Personal Ledger Account SRV: Accounts for Services
From Tax Type | Enter a user-defined code from UDC table 75I/GT that identifies the tax type. Values are: AED: Additional Excise Duty BED: Basic Excise Duty Cess: Education Cess CVD: Counter Veiling Duty CVDCS: Education Cess - CVD FT: Freight for JST adj INTR: INTR:Interest - TDS OTHROther - TDS PF: Packaging & Forwarding SED: Special Excise Duty ST: Service Tax STCS: Education Cess - ST SURSurcharge TCS: Tax Collected at Source TDS:Tax Deducted at Source TOT: Turn Over Tax VAT: Value Added Tax
To Tax Type | Enter a user-defined code from UDC table 75I/GT that identifies the tax type. Values are: AED: Additional Excise Duty BED: Basic Excise Duty Cess: Education Cess CVD: Counter Veiling Duty CVDCS: Education Cess - CVD FT: Freight for JST adj INTR: INTR:Interest - TDS OTHROther - TDS PF: Packaging & Forwarding SED: Special Excise Duty ST: Service Tax STCS: Education Cess - ST SURSurcharge TCS: Tax Collected at Source TDS:Tax Deducted at Source TOT: Turn Over Tax VAT: Value Added Tax
Annual Percentage | Enter the credit percentage that is used for distributing credit.

### Offsetting Cenvat Credit and Calculating Duty Liability

This section provides overviews of VAT and Cenvat credit offset on raw materials, calculation of duty liability on manufactured goods, and calculation of duty liability on personal consumption of manufactured goods, lists prerequisites, and discusses how to:

- Set processing options for Personal Consumption (P75I309).

- Reviewing the offset Cenvat and Cenvat credits amounts.

- Calculating duty liability for goods consumed.

#### Understanding VAT and Cenvat Credit Offset on Raw Materials

You use the Item used For Personal Consumption program (P75I309) to offset the Cenvat credit claimed during the procurement of raw materials in these scenarios:

- Personal consumption of raw materials.

  You must offset the Cenvat credit for raw materials that are consumed internally by a manufacturer.

- Nonsubmission of documentary evidence.

  You must submit a document to claim the Cenvat credit, which identifies the excise duty liability incurred by the shipping organization. You must delete the records for which you have no documents before you process the Cenvat claim.

- Manufacture of exempted goods.

  You cannot claim the Cenvat credit for manufacturing nonexcisable goods from excisable inputs.

#### Understanding Calculation of Duty Liability on Manufactured Goods

You use the Item used For Personal Consumption program (P75I309) to calculate the duty liability on manufactured goods for these scenarios:

- Personal consumption of manufactured goods.

  You must pay duty on goods that you manufacture and that you consume internally.

- Manufacture of exempted goods and input credit claimed.

  You can claim the Cenvat credit on an entire consignment when you use common inputs to manufacture both excisable and nonexcisable goods. When you claim Cenvat credit in this situation, you must determine the excise duty liability at the applicable percentage on the value of the goods excluding the sales tax.

#### Understanding Calculation of Duty Liability for Personal Consumption of Manufactured Goods

You must account for personal consumption of manufactured goods to calculate the duty credit offset. To generate stock transfers to account for the goods:

- Define a branch/plant for personal consumption.

- Use the Item used For Personal Consumption program (P75I309) to process a stock transfer from the manufacturing branch/plant to the personal consumption branch/plant.

  Set the processing option to indicate manufactured items. There is no actual movement of goods.

- Process an inventory issue from the personal consumption branch/plant in the amount of the consumed goods to reduce the available quantity in the branch/plant.

#### Prerequisites

Before you complete the tasks in this section:

1. Define a separate branch/plant for personal consumption.

2. Create a request for a stock transfer from the manufacturing branch/plant to the personal consumption branch/plant.

3. Perform an inventory issue from the personal consumption branch/plant.

4. Set the value of the processing option Consumption Mode to 0 to review existing records for purchase order receipts.

5. Set the value of the processing option Consumption Mode to 1to review existing stock transfer orders.

#### Forms Used to Offset Cenvat Credit and Calculate Duty Liability

Form Name | FormID | Navigation | Usage
Work With Purchase Order Receipts | W75I309A | Purchase tax (G75I2212), Item used For Personal Consumption | Review existing records for purchase order receipts.
Personal Consumption And Duty Credit Setoff - Inputs | W75I309B | Select a record on the Work With Purchase Order Receipts forms and click Select. | Review the offset Cenvat and Cenvat credits amounts claimed during the purchase.
Work With Stock transfers | W75I309D | Purchase tax (G75I2212), Item used For Personal Consumption | Review existing stock transfer orders.
Personal Consumption And Duty Credit Setoff - Manufactured items | W75I309E | Select a record on the Work With Stock Transfers form and click Select. | Calculate the duty liability for goods consumed.

#### Setting Processing Options for Item used For Personal Consumption (P75I309)

Processing options enable you to specify the default processing for programs and reports.

Defaults

Consumption Mode | Specify the mode of internal consumption to offset credit. Values are: 0: Offset credit on raw materials and other inputs. 1: Offset credit on manufactured items. The purchase order receipts are the reference documents when you offset credit on raw materials. The stock transfer orders to the internal consumption branch plant are the reference documents when you offset credit on manufactured items.

Tax Type

Additional Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the additional excise duty component of tax.
Basic Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the basic excise duty component of tax.
Special Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the special excise duty component of tax.
Education Cess | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the education cess component of tax.
Secondary Higher Education Cess | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the higher secondary education cess component of tax.

#### Reviewing the Offset Cenvat and Cenvat Credits Amounts

Access the Personal Consumption And Duty Credit Setoff – Inputs form.

Reason Code | Enter a user-defined code from UDC table 75I/RC that identifies the duty or duty credit offset. Values are: DOC: Non-Submission of Documents EXMPT: Manufacture of Exempted Goods INCON: Internal Consumption

Calculate Duty/Tax - Setoff

Consumption Qty(consumption quantity) | Enter the quantity of raw materials or finished goods used for personal consumption, that is, the goods not meant for sale.
Setoff VAT | Enter the total amount of duty charges liable for offset.

CENVAT Break up

BED | Enter the basic excise duty (BED). BED is an excise component that is applicable for any item.
CESS | Enter the education cess. Education cess is a tax component which can be levied on taxes or duties.
AED | Enter the additional excise duty (AED). AED is an excise component that is applicable for any item.
SED | Enter the special excise duty (SED). SED is an excise component that is applicable on any item.
Others | Enter any tax component to be used in future.

#### Calculating Duty Liability for Goods Consumed

Access the Personal Consumption And Duty Credit Setoff – Manufactured items form.

Reason Code | Enter a user-defined code from UDC table 75I/RC that identifies the duty or duty credit offset. Values are: DOC: Non-Submission of Documents EXMPT: Manufacture of Exempted Goods INCON: Internal Consumption

Calculate Duty

Consumption Qty(consumption quantity) | Enter the quantity of raw materials or finished goods used for personal consumption, that is, the goods not meant for sale.
BED | Enter the basic excise duty (BED). BED is an excise component that is applicable for any item.
CESS | Enter the education cess. Education cess is a tax component which can be levied on taxes or duties.
AED | Enter the additional excise duty (AED). AED is an excise component that is applicable for any item.
SED | Enter the special excise duty (SED). SED is an excise component that is applicable on any item.
Others | Enter any tax component to be used in future.

### Offsetting Cenvat Credit Against Excise Tax

This section provides an overview of how to offset Cenvat credit against excise tax, lists prerequisites, and discusses how to:

- Set processing options for Credit Distribution (P75I012).

- Offset Cenvat credit for excise and services against excise tax.

#### Understanding Cenvat Credit Offset Against Excise Tax

You use the Credit Distribution program (P75I012) to offset Cenvat credit for excise and services against the excise tax. For imports, you use this program to offset Cenvat credit for countervailing duty (CVD). You can also use this program to issue payments to the tax authority for any excise tax liabilities after offsetting the liabilities against Cenvat credit from excise and services. You can review all invoices for a particular period for which the excise has not been paid. You can make excise tax payments from the Cenvat accounts of raw materials, capital goods, and personal ledger account (PLA).

The excise-to-service transactions update the Credit Distribution table (F75I013). After you issue payments for excise or services, the system displays the voucher number generated when issuing payments to the tax authorities.

Note. You use the Credit Distribution Percentage program to define the percentage for CVD and services.

#### Prerequisites

Before you perform the tasks in this section, you must:

1. Set up the excise unit and the branch/plant relationship.

2. Update the debit amount with AR information and the credit amount with AP information at the recovery moment for the services in the Service Tax Cenvat table (F75I750).

3. Complete the O2C and P2P cycles for excise and service taxes.

4. Set up the credit distribution percentage.

#### Forms Used to Offset Cenvat Credit Against Excise Tax

Form Name | FormID | Navigation | Usage
Credit Distribution - Excise | W75I012H | Excise periodic Processing (G75IEXC2H), Credit Distribution | Offset Cenvat credit for excise and services against excise tax. Offset credits from different accounts and update the F75I750 table and the Excise - MODVAT/PLA Summary File table (F75I310Y). Update the cross-transactional settlement details in the F75I013 table. Update the Excise Payment Details table (F75I320Y).

#### Setting Processing Options for Credit Distribution (P75I012)

Processing options enable you to specify the default processing for programs and reports.

Defaults

Excise Unit | Specify the address book number of the excise unit.
Operating Unit | Specify the operating unit of services.
Service Category Code | Specify the a user-defined code from UDC table 41/01 that indicates the service category classification. Examples are: 01: Telephone 02: Transport 03: Cleaning
Tax Authority - Excise | Specify the address book number for the tax authority of the excise unit.
Tax Authority - Service | Specify the address book number for the tax authority of the service unit.

Tax Type

Additional Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the additional excise duty component of tax.
Basic Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the basic excise duty component of tax.
Special Excise Duty | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the special excise duty component of tax.
Education Cess | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the education cess component of tax.
Secondary Higher Education Cess | Specify a user-defined code from UDC table 75I/GT that identifies the tax type for the higher secondary education cess component of tax.
Counter Veiling Duty | Specify the user-defined code CVD (Counter Veiling Duty) from UDC table 75I/GT to indicate the tax type.
Education Cess on CVD | Specify the user-defined code CVDCS (Education Cess - CVD) from UDC table 75I/GT to indicate the tax type.
Service Tax | Specify the user-defined code ST (Service Tax) from UDC table 75I/GT to indicate the tax type.
Education Cess on ST | Specify the user-defined code STCS (Education Cess - ST) from UDC table 75I/GT to indicate the tax type.

Item Type

Services | Specify the value that describes the item type for services.
Raw Material | Specify the value that describes the item type for raw material.
Capital Goods | Specify the value that describes the item type for capital goods.
Personal Ledger Account | Specify the value that describes the item type for personal ledger account.

#### Offsetting Cenvat Credit for Excise and Services Against Excise Tax

Access the Credit Distribution - Excise form.

Date From | Enter the beginning date in the date range for which you want to display invoices.
Payment Date | Enter the date on which the payments are made to the tax authority.

Raw Materials, Capital Goods, PLA

These fields appear under Credit Utilised heading for various tax types.

Basic Excise Duty, Education Cess, Special Excise Duty, Additional Excise Duty, Higher Education Cess | Enter the credit utilized for the appropriate tax.

Service Tax

These fields appear under Credit Utilised heading on the Service Tax tab.

Service Tax Education Cess | Enter the credit utilized for the appropriate tax.

CVD

These fields appear under Credit Utilised heading on the CVD tab.

Counter Veiling Duty - RM, Education Cess - RM, Counter Veiling Duty - CG, Education Cess - CG | Enter the credit utilized for the appropriate tax.

### Offsetting Cenvat Credit Against Service Tax

This section provides an overview of how to offset Cenvat credit against service tax, lists prerequisites, and discusses how to:

- Set processing options for Credit Distribution - Services (P75I013).

- Offset Cenvat credit for excise and services against service tax.

#### Understanding Cenvat Credit Offset Against Service Tax

You use the Credit Distribution - Services program (P75I013) to offset Cenvat credit for excise and services. You also use this program to issue payments to the tax authority for any service tax liabilities after offsetting the liabilities against Cenvat credit from excise and services. You must pay the services from the Cenvat accounts for services, raw materials, and capital goods in accordance with the percentage defined in the Credit Distribution Percentage application and then create an AP voucher in a specified order.

The service-to-excise transactions update the F75I013 table. After you issue payments for excise or services, the system displays the voucher number generated when issuing payments to the tax authorities.

#### Prerequisites

Before you perform the tasks in this section, you must:

1. Set up the relationship between an operating unit and a business unit or cost center.

2. Update the debit amount with AR information and the credit amount with the AP information at the recovery moment for the services in the F75I750 table.

3. Complete the O2C and P2P cycles for the excise and service taxes.

4. Set up the credit distribution percentage.

#### Forms Used to Offset Cenvat Credit Against Service Tax

Form Name | FormID | Navigation | Usage
Service Payments | W75I013G | Excise periodic Processing (G75IEXC2H), Credit Distribution - Services | Offset Cenvat credit for excise and services against service tax. Offset credits from different accounts and updates the F75I750 table and the Excise - MODVAT/PLA Summary File table (F75I310Y). Update the cross-transactional settlement details in the F75I013 table.

#### Setting Processing Options for Credit Distribution - Services (P75I013)

Processing options enable you to specify the default processing for programs and reports.

Defaults

Operating Unit | Specify the operating unit of services.
Year | Specify the year for which you want to make the payments.
Calender Month | Specify the number of the month for which you want to run the report. For example, enter 01 for January.
Excise Unit | Specify the address book number of the excise unit.
Address Number-Excise Tax Authority | Specify the address book number for the tax authority of the excise unit.

From Tax Type

Basic Excise Duty | Specify the user-defined code BED (Basic Excise Duty) from UDC table 75I/GT to indicate the tax type.
Education Cess- Basic Excise Duty | Specify the user-defined code Cess (Education Cess) from UDC table 75I/GT to indicate the tax type.
Special Excise Duty | Specify the user-defined code SED (Special Excise Duty) from UDC table 75I/GT to indicate the tax type.
Additional Excise Duty | Specify the user-defined code AED (Additional Excise Duty) from UDC table 75I/GT to indicate the tax type.
Counter Veiling Duty | Specify the user-defined code CVD (Counter Veiling Duty) from UDC table 75I/GT to indicate the tax type.
Education Cess-Counter Veiling Duty | Specify the user-defined code CVDCS (Education Cess - CVD) from UDC table 75I/GT to indicate the tax type.
Service Tax | Specify the user-defined code ST (Service Tax) from UDC table 75I/GT to indicate the tax type.
Education Cess-Service Tax | Specify the user-defined code STCS (Education Cess - ST) from UDC table 75I/GT to indicate the tax type.

Item Type

Raw Material | Specify the accounts from which the credits can utilized for the purpose of offsetting on raw materials.
Capital Goods | Specify the accounts from which the credits can utilized for the purpose of offsetting on capital goods
Services | Specify the accounts from which the credits can utilized for the purpose of offsetting on services.

#### Offsetting Cenvat Credit for Excise and Services Against Service Tax

Access the Service Payments form.

Assign to

Tax Type | Enter a user-defined code from UDC table 75I/GT that identifies the tax type. Values are: AED: Additional Excise Duty BED: Basic Excise Duty Cess: Education Cess CVD: Counter Veiling Duty CVDCS: Education Cess - CVD FT: Freight for JST adj INTR: INTR:Interest - TDS OTHROther - TDS PF: Packaging & Forwarding SED: Special Excise Duty ST: Service Tax STCS: Education Cess - ST SURSurcharge TCS: Tax Collected at Source TDS: Tax Deducted at Source TOT: Turn Over Tax VAT: Value Added Tax
Service Category Code | Enter a user-defined code from UDC table 41/01 that indicates the service category classification. Examples are: 01: Telephone 02: Cleaning 03: Transport

Services

These fields appear under Credit Utilised heading for Services tab.

Service Tax and Education Cess | Enter the credit utilized for the appropriate tax type.