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FAQ-9 ( Excise for Manufacturers):

How to account purchase of capital goods and avail CEVAT Credit? What is the procedure to adjust the CENVAT Credit of Capital goods towards Service Tax liability?

Capital Goods:

Capital goods refer to the means of production. Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption 

As per Excise Act, on the purchase of Capital goods at any point of time in a financial year CENVAT credit shall be availed to the extent of 50% of the Duty paid in the same financial year. The balance of CENVAT credit may be availed in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer.

The CENVAT credit in respect of the capital goods shall be allowed to a manufacturer even if the capital goods are acquired by him on lease, hire purchase or loan agreement, from a financing company

The CENVAT credit in respect of capital goods shall not be allowed if the manufacturer claims depreciation on that part of the value of such capital goods that represents the amount of duty on such capital goods.

To take account purchase of capital goods and avail CEVAT Credit, follow the steps given below

 

Step 1: Create Stock Item (Capital Goods)

In F12: Configure (Stock Item Configuration)

Ÿ       Set the option Allow ADVANCED entries in Masters to Yes

Go to Gateway of Tally > Inventory Info. > Stock Item > Create

Ÿ       Enter the Name of the capital goods- Machinery

Ÿ       Select the Stock Group, Unit of Measurement, Tariff Classification

Ÿ       Enable the option Set/Alter Excise Details to Yes to provide excise details for the capital goods

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Ÿ       In Excise Details screen, select the Excise Unit Name, Reporting UOM and enable the option Set/Alter Duty Details to Yes

Ÿ       In Excise Duty Details screen enter the duty applicable for the capital goods as shown below

 

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Ÿ       In Excise Details screen, select the option Capital Goods in Stock Item Type field

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  Press enter to save the stock item.

Step 2: Create Fixed Assets Ledger

Create Plant & Machinery ledger, group under Fixed Assets. Enable VAT option and select VAT/Tax Class Purchase – Capital Goods @ 4%

 

Step 3: Create Voucher Class for Debit Note

Go to Gateway of Tally > Accounts Info. > Voucher Types > Alter

Ÿ       From the List of Voucher Types select Debit Note

Ÿ       In the Debit Note Voucher tab down to Name of Class field

Ÿ       In the Name of Class enter the class name as CENVAT Availing

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Ÿ       In the Voucher Type Class screen set the option Use Class for Excise/CENVAT Adjustments to Yes

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·        Press Enter to save Voucher Type Class screen and Voucher Type Alteration screen.

Step 4: Create Voucher Class in Journal Voucher

Go to Gateway of Tally > Accounts info. > Voucher Types > Alter > Journal

Ÿ       Tab down to Name of Class field

Ÿ       Enter the Name of Class as CENVAT Credit Adjustment and press Enter

Ÿ       In Voucher Type Class Screen

Ÿ       Set Use Class for Excise /CENVAT Adjustment to Yes

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Ÿ       Press Enter to accept and save.

Step 5: Record a Purchase Voucher

Record the purchase of Capital goods and select the Excise duty Ledgers to account the duty amount.

On capital goods purchases user can avail only 50% of the credit in current financial year and 50% should be transferred to current asset account. Currently there is no provision to avail partial credit and transfer the balance 50% credit to control account in Purchase Voucher.

To satisfy all the above conditions, in purchase voucher select the Excise duty ledgers instead of CENVAT ledgers so that, the total excise amount gets allocated to the Fixed Asset Ledger. Later by recording a adjustment entry the credit amount can be transferred to a control account to claim 50% credit in current financial year and remaining 50% credit in subsequent years.

The completed Purchase Voucher is displayed as shown

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Step 6:  Record Journal Voucher to transfer the eligible credit amount from Capital Goods (Fixed Asset Ledger) to Current Asset ledger.

 i. Create the Current Asset Ledger – Available CENVAT Credit on Capital Goods

  • Debit - Available CENVAT Credit on Capital Goods ledger and in Amount field enter the total amount of Eligible credit on capital goods
  • Credit  Plant & Machinery Ledger (to transfer the CENVAT Credit amount from the asset ledger) to view Inventory Allocation screen
  • In Inventory Allocation screen
    • In Name of Item field select Machinery
    • In Amount field specify Rs.1,64,800 (the total credit available on the capital goods)

 

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NoteQuantity and Rate details are not required.

Completed Journal voucher appears as shown

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Step 7: Record a Debit Note (with CENVAT availing voucher Class) to avail 50% of credit in the current Financial Year.

Go to Gateway of Tally > Accounting Vouchers > Ctrl + F9: Debit Note

Ÿ       In Change Voucher Type screen in Class field select CENVAT Credit Adjustment from the Voucher Class List

Ÿ       In Excise Unit field select ABC Company

Ÿ       In Nature of Purchase field select Manufacturer

Ÿ       In Debit field select Basic Excise Duty (CENVAT) to view Excise Duty Allocation screen

Ÿ       In Excise Duty Allocation screen

        o        In Type of Ref select New Ref

        o        In Name field enter the reference name used in the purchase voucher

        o        In Party Name field select Universal manufacturers from the List of Ledger Accounts

        o        In the Name of Item field select Machinery

        o        In Quantity field enter 1

        o        In the Assessable Value field enter Rs. 10,00,000

Note: As per law, only 50% of the duty paid on capital goods can be availed as CENVAT credit in the same financial year in which the capital goods is purchased. To calculate the partial CENVAT Credit here, enter the credit amount in Amount column.

o        in the Rate field the rate of duty defined in the ledger will be defaulted (if the rate of duty is not defined during ledger creation enter the applicable rate of duty)

            o        Enter the duty amount of Rs. 80,000 in Amount field

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Ÿ       In Debit field select Education Cess (CENVAT) to view Excise Duty Allocation screen

Ÿ       In Excise Duty Allocation screen

        o        In Type of Ref select New Ref

        o        In Name field enter the reference name used in the purchase voucher

        o        In Party Name field select Universal manufacturers from the List of Ledger Accounts

        o        In the Name of Item field select Machinery

        o        In Quantity field enter 1

        o        In the Assessable Value field enter Rs. 80,000

  

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Ÿ       Similarly, select Secondary Education Cess (CENVAT) and provide the excise details as shown

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Ÿ       In Credit field, select Available CENVAT Credit on Capital Goods and press enter to view Excise Duty Allocation screen

Ÿ   In Excise Duty Allocation screen

o               Select Agst Ref in Type of Ref field

o               In Name field select bill Si/125/09-10 dated 17-5-2009 (Basic Excise Duty @ 16%) from the List of Pending Tax Bills

o               In the Amount field enter Rs.80,000 (is the amount which is availed as CENVAT Credit against the Basic Excise Duty)

o               Select Agst Ref in Type of Ref field

o               In Name field select bill Si/125/09-10 dated 17-5-2009  (Education Cess @ 2%) from the List of Pending Tax Bills

o               In the Amount field enter Rs.1,600 (is the amount which is availed as CENVAT Credit against the Education Cess)

o               Select Agst Ref in Type of Ref field

o               In Name field select bill Si/125/09-10 dated 17-5-2009 (Secondary Education Cess @ 2%) from the List of Pending Tax Bills

o               In the Amount field enter Rs.800 (is the amount which is availed as CENVAT Credit against the Secondary Education Cess)

The Excise Duty Allocation screen appears as shown

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Ÿ   Amount will be defaulted automatically

 

The completed Debit Note voucher is displayed as shown 

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Step 8: Record the Sale of Services (Sales Voucher)

Record the sales of services (ensure the required ledgers are created with appropriate settings)

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Step 9: Record the Receipt of Payment (Receipt Voucher)

In case of Service Tax, liability to pay service tax arises only on the receipt of payment from the customer.  

 

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On receipt of payment from the customer the service tax payable amount will be displayed in the Service Tax Payable (Bill-Date Wise) report

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Step 10: Record a CENVAT Adjustment Journal to adjust the CENVAT Credit of Capital Goods towards Service Tax Payable

ABC Company adjusts full amount of Service Tax Payable i.e. Rs. 51500 (Service Tax of Rs.50000, Education Cess of Rs. 1000 and Secondary Education Cess of Rs. 500) towards CENVAT Credit of Capital Goods.

To pass a CENVAT Adjustment entry, go to Gateway of Tally > Accounting Vouchers > F7: Journal

Ÿ       In Change Voucher Type screen, select CENVAT Adjustment in Class field.

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Ÿ       In Used For field select the option CENVAT Adjustment from Excise Adjustments list

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Ÿ       In Excise Unit field, select ABC Company

Ÿ       In Debit field select Output Service Tax Ledger and press enter to view Service Tax Bill Details screen

Ÿ       In Type of Ref field select Agst Ref and select Sales/1-1 bill to adjust the full amount of Rs 51,500

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Ÿ       In Credit field select Basic Excise Duty (CENVAT) and press enter to select excise bills

Ÿ       In Excise Duty Allocation screen

        o        Type of Ref field will be defaulted to Agst Ref

        o        In Name field select the bill towards which the service tax to be adjusted – select Si/125/09-10 bill (purchase bill name of Capital Goods)

 

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          o        In Amount field mention Rs 50,000 to adjust towards Service Tax  

 

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          o        Select End of List and save the Excise Duty Allocation screen

Ÿ       In Credit field select Education Cess (CENVAT) and select Si/125/09-10 and enter Rs.1000 to adjust towards Education Cess on Service Tax

Ÿ       Similarly, in Credit field select Secondary education Cess (CENVAT) and select Si/125/09-10 and enter Rs.500 to adjust towards Secondary Education Cess on Service Tax

Ÿ       Set the option to Provide Details to Yes to enter the Adjustment Period

 

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The completed CENVAT Adjustment Journal Voucher appears as shown

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