Cenvat Credit Accounting

8/14/2019 Cenvat Credit Accounting

1/5

Acounting for Cenvat

Introduction:

Accounting under service tax is one of the important aspects for the assesses in the organization. In thisarticle we would like to highlight some important basic accounting entries with regard to service tax. Sothat, the organization is able to match the financial figures with the service tax returns. We would alsoexplaining basic accounting entries with cenvat bills.

1) Contents of the invoices:

The need for raising an invoice under service tax law arises under Rule 4A of service tax rules, 1944.As per Rule 4A Every person providing taxable services shall have to raise an invoice within 30 daysof completion of service or payment received towards providing of such taxable service.

The invoice should contain the following details:

a) The Name, Address, and the Registration number of such person

b) The Name, Address, of the Person receiving taxable service

c) Description and value of taxable service provided or agreed to be provided

d) The service tax payable thereon should be calculated

2) Accounting of an invoice raised on vendors:

Vendor A/c..(Name of the vendor) Dr

To Service A/c (Name of the service))

To Service tax payable A/c

Page 1 of 5CAclubindia News : Acounting for Cenvat

10/20/2012http://www.caclubindia.com/articles/print_this_page.asp?article_id=15353


2/5

To Higher education cess A/c

To Secondary higher education cess A/c

After raising an invoice, There are 3 situations under which separate accounting entries arises with

nature of receipts.

a) Situation 1: Amount fully received from the vendor

Bank A/c Dr

To Vendor A/c

To TDS Receivable A/c (if he deducted)

b) Situation 2: Amount partly received

Bank A/c. Dr

To Vendor A/c

To TDS Receivable A/c

c) Situation 3: Amount not received fully

Bad debts A/c .. Dr

To Vendor A/c

(Note: In situation 1 & 2 there is no relief to the service provider to claim adjustment/ refund of theservice tax already paid by him but not received from the service receiver. This amount cannot beclaimed back due to the reason that as per section 6(3) of the service tax rules, 1994 service has alreadybeen provided, as per section rule 6(4A)/(4B) it is not a case of excess payment. The point of taxation is




3/5

also occurred and service tax is also paid. Therefore it becomes a burden on the service provider.)

In case of Excise or VAT, actual realization of sales proceed is not relevant for payment of excise duty /VAT and it is the same for service tax too.

So beware while providing service and issuing invoice. If the service receiver is not going to pay youthe bill, the loss is not only limited to the billed amount, but the service tax already paid in this regardwould also have to be foregone.

3) Accounting for cenvat bills

A manufacturer or producer of final products or a provider of output service shall be allowed to takecredit.

The basic conditions to be satisfied for availing cenvat credit are as follows:

Rule 4 imposes conditions for availing CENVAT credit. The CENVAT Credit in respect of inputs may

be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of theprovider of output service. In respect of final products namely, article of jewellery, falling under 7113of the First schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be takenimmediately on receipt of such inputs in the registered premises of the person who get such finalproducts manufactured on his behalf, on job work basis, subject to the condition that the inputs are usedin the manufacture of such final product by the job worker.

The CENVAT credit shall be allowed even if any input or capital goods as such removal or after beingpartially processed are sent to a job worker for further processing, testing, repair, re-condition or for the

manufacture of immediate goods necessary for the manufacture of final product or any other purpose.Only if it is established from the records, challans or memos or any other document produced by themanufacturer or provider of output service taking the CENVAT credit that the goods are received backin the factory within one hundred and eighty days of their being sent to a job worker.If the inputs are notreceived back within one hundred and eight days the manufacturer or provider of output service shallpay an equivalent to the CENVAT credit attributable to the inputs by debiting the CENVAT credit orotherwise, but the manufacturer or provider of output service can take the CENVAT credit again whenthe inputs or capital goods are received back in his factory or in the premises of output service provider.




4/5

Rule 7A provides that a provider of output service shall be allowed to take credit on inputs on the basisof an invoice or a bill or a challan issued by an office or premises of the said provider of outputservice.The invoice issued shall be in terms of the provisions of Cenvat Credit Rules 2002, towards thepurchase of inputs.

It is provided that the Deputy Commissioner of Central Excise or the Asst. Commissioner of CentralExcise, as the case may be, having jurisdiction over the factory of a manufacturer of the final productsmay, in exceptional circumstances having regard to the nature of the goods and shortage of storagespace at the premises of such manufacturer, by an order, permit such manufacturer to store the input inrespect of which CENVAT credit has been taken, outside such factory, subject to such limitation andconditions as he may specify.Where such input is not used in the manner specified in the rules for anyreason whatsoever, the manufacturer of final products shall pay an amount equal to the credit availed inrespect of such input.

Rule (9) (4) provides that the CENVAT credit in respect of input purchased from a first stage dealer orsecond stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the casemay be, has maintained records indicating the fact that the input was supplied from the stock on whichthe duty was paid by the producer of such input and only an amount of such duty on pro rata basis hasbeen indicated in the invoice issued by him.

Accounting Entries for booking cenvat

Goods A/c Dr

Cenvat receivable A/c

Education cess A/c

SHE Cess A/c to

Vendor A/c

(Note; if in case goods returned to the vendor , reverse the above entry)

Adjustment Accounting entry for utilizing cenvat credit




5/5

Service tax payable A/c. Dr

To Cenvat receivable A/c

To Cash A/c.

(Note: If sufficient cenvat credit exists in the books then question of payment by cash doesn`t arise)

Finally, it is advisable to all the assessee`s to ensure their financial figures is matching with the returnsfigures as that is the important document for the department officials during the time of adjudication.

Readers any quires may write to author @ [email protected]:

Source : own -


10/20/2012h // l bi di / i l / i hi ? i l id 15353

Documents

Cenvat Credit Accounting