What is the difference between cenvat and modvat

This balance can be adjusted against the duty payable but is not refunded. So, it is desirable to utilize this balance, at the earliest.

In other words under a CENVAT CREDIT scheme, exporter is totally freed from the burden of excise duty, at all the different stages, on inputs used, duty paid on final products and even duty paid on capital goods purchased. Under a CENVAT credit scheme, the intention of Government is to eliminate the burden of excise duty on exports totally, paid directly or indirectly, to make them globally competitive. The system was termed as MODVAT, as it was restricted upto manufacturing stage and credit of only excise duty paid on manufacturing products and corresponding CVD paid on imported goods was available.

System of VAT was introduced to service tax w. VAT was not extended to sales tax, as sales tax is under jurisdiction of State Governments. Industry captains were looking forward to this game changing legislation that could have made it easier to do business in India. But it's not a clean break. The manufacturers of bottled beverages will no more be able to retain the Cenvat credit or the tax set-off paid on inputs, claimed on broken bottles if they have already claimed the excise duty exemption on them.

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Under this scheme, a manufacturer can take credit of excise duty paid on raw materials and components used by him in his manufacture. Accordingly, every intermediate manufacturer can take credit for the excise element on raw materials and components used by him in his manufacture.

Since it amounts to excise duty only on additions in value by each manufacturer at each stage, it is called value-added-tax VAT The modvat credit can be utilized towards payment of excise duty on the final product. It reduces the effects of taxation at multiple stages of manufacture It facilitates duty free exports.