Q. With reference to Central Value Added Tax (CENVAT) Credit, consider the following statements:
1.CENVAT allows manufacturers to claim credit for the excise duty paid on inputs and use it to offset the duty on final products.
2.The availability of CENVAT Credit encourages investment in capital goods by allowing credit for tax paid on them.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation:
- CENVAT allows a manufacturer to take credit of the excise duty paid on raw materials and input services.
- This credit can then be used to reduce the excise duty liability on the final product.
- This avoids the cascading effect of taxation at multiple stages of production.
- CENVAT Credit is also available on capital goods, which encourages manufacturers to invest in machinery and technology.
- Since tax paid on such capital goods can be claimed back as credit, it reduces the effective cost of investment, promoting modernization and higher productivity.
Source: Indian Economy (N.C.E.R.T)
