What is the central excise duty in India?

The central excise duty in India is a modified form of value-added tax (VAT) where a manufacturer is allowed credit on the excise duty paid on locally sourced goods as well as on the countervailing duty (CVD) paid on imported goods. The central value-added tax (CENVAT) credit can be utilized for payment of excise duty on the clearance of dutiable final products manufactured in India. In light of the integration of the goods and services tax initiated in 2004, manufacturers of dutiable final products are eligible to apply CENVAT credit to the service taxes paid on input services used in or in relation to the manufacture of final products as well as on clearances of final products up until the point of removal.

In addition, CENVAT credit is allowed on the following input services:

• Services used in relation to setting up, modernization, renovation or repairs of a factory, the premises of a service provider or an office relating to such a factory or premises;
• Advertisement or sales promotion services;
• Services relating to the procurement of inputs; and
• Activities relating to businesses such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods, and outward transportation.

A manufacturer of dutiable and exempt goods, using common inputs or input services and opting not to maintain separate accounts, may choose between reversing the credit attributable to the inputs and input services used for manufacture of the exempted goods, to be worked out in a manner prescribed in the rules or paying a percentage of the value of the exempted goods.