CENVAT (Central Value Added Tax )Credit Meens, Input tax of 
purchase of Raw Materials, Packing Material, Fixed Assets 
and Consumables. This Input tax credit we can setoff the 
tax payble which we have to pay to the government

CENVAT (Central Value Added Tax) credit is the the set off 
of the duty paid on inputs and capital goods and also 
service tax paid on input service against the Excise duty 
on final products or service tax o input service.

Ex:-
1. Purchased Raw Material (inputs)       Rs.110
  (Includes 10% Tax paid on it i.e. Rs.10)
2. Value addition                        Rs.200
3. Total (1+2)                           Rs.310
4. Excise Duty on (3) above, Say 20% i.e Rs. 62
           -----------------------
If Cenvat credit,is there,
Cost of Product= [(110-10)+200+ 20%(100+200)]=Rs.360

If Cenvat credit,is not there,
Cost of Product= [110+200+ 20%(100+200)]=Rs.372

SCHEME DESIGNED TO REDUCE THE CASCADING EFFECT OF INDIRECT 
TAXES ON FINAL PRODUCTS. 
New Cenvat Credit Rules 2004 have been introduced with 
effect from 10-9-2004 in place of earlier CENVAT CREDIT 
RULES , 2002 AND SERVICE TAX CREDIT RULES,2O02 

This credit can be utilized for payment of excise duty on 
final products and service tax on output services. Credit 
taken on input services can be used for payment of excise 
duty and vice versa. 

Credit can be taken for all services used in relation to 
setting up, modernization or repairs of a factory, services 
relating to advertisement or sales promotion, management, 
recruitment etc. 
Particulars Under non-Cenvat Rs. Under Cenvat Rs.A Raw 
material 100 100 
Add excise duty @16% 16 16 
Total 116 116 
Credit allowable Nil 16 
Net cost of X 116 100 
B Value Addition 100 100 
Product Y 216 200 
Add excise duty @16% 34.56 32 
Total cost 240.56 232 
Credit allowable Nil 32 
Net cost of X 240.56 200 
c Value Addition 100 100 
Product Z 340.56 300 
Add excise duty @16% 54.40 48 
Total cost of Z 394.56 348 
Credit allowable Nil 48 
Net cost Z 394.56 300