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Guidance Note on
Accounting Treatment for
MODVAT/CENVAT
(The following is the text of the Guidance Note on Accounting Treatment for
MODVAT/CENVAT, issued by the Council of the Institute of Chartered
Accountants of India. )
Introduction
1.
The Guidance Note on Accounting Treatment for MODVAT was first issued
in March 1988. The Guidance Note was revised in July 1995 in view of extension
of MODVAT Credit Scheme to capital goods. The Guidance Note is revised
again with the issuance of revised Accounting Standard (AS) 2 on Valuation of
Inventories, which has come into effect in respect of accounting periods
commencing on or after 1.4.1999 and is mandatory in nature. This revised
Guidance Note is issued in supersession of the earlier Guidance Note issued
in July 1995, and is effective in respect of accounting for MODVAT for accounting
periods beginning on or after April 1, 1999. With the substitution of the MODVAT
Credit Scheme with CENVAT Credit Scheme w.e.f. 1.4.2000, this revised
Guidance Note also deals with accounting treatment in respect of the latter
Scheme.
Objective
2.
The objective of this Guidance Note is to provide guidance in respect of
accounting for MODVAT/CENVAT credit. Salient features of MODVAT and
CENVAT credit schemes are briefly set out hereinafter. Reference may be made
to Central Excise Act, 1944, Central Excise Rules, 1944, Notifications and
Circulars issued from time to time for details of the provisions of MODVAT/
CENVAT Schemes. Guidance for accounting for excise duty is provided in the
Guidance Note on Accounting Treatment for Excise Duty, which has been revised
and issued separately.
386
General
10. The general salient features relevant to Input Duty Credit Scheme and
Capital Goods Duty Credit Scheme are as below:
(i) A manufacturer is required to comply with various procedural
requirements, in particular, filing of declaration, and maintenance
of register of receipts, issues and balance of inputs and capital goods
in Form RG-23A Part I and RG-23C Part I, respectively. It is also
required to maintain registers related to MODVAT credit in respect
of inputs and capital goods in Form RG-23A Part II and RG-23C
Part II, respectively.
(ii) There is no time limit for utilisation of MODVAT credit. Government
is, however, empowered to provide for lapsing of unutilised credit
balances for specific products.
(iii) Cash refund of duty credit is not allowable except in case of export
of goods if the manufacturer is unable to utilise duty credit towards
payment of excise duty on clearance of final goods from his factory.
Para 6.1(b) of erstwhile Guidance Note has been withdrawn. This para recommended as below:
(b)
in the second alternative, the cost of inputs may be recorded at the total amount paid to the
supplier inclusive of the specified duty on inputs. To the extent the MODVAT credit is utilised for
payment of excise duty on final products, the amount could be credited to a separate account, e.g.,
MODVAT Credit Availed Account. Out of the MODVAT Credit Availed Account, the amount of
MODVAT credit availed in respect of consumption of inputs would be reduced from the total cost of
inputs consumed. The balance amount standing to the credit of MODVAT Credit Availed Account
representing MODVAT credit in respect of input not consumed but lying in stock could be shown in
the balance sheet as deduction from the value of inventory. It will have to be ensured that the setoff for MODVAT credit on input not yet consumed is carried forward and there is no accounting of
double income, firstly, as set-off adjusted as reduction in the cost of input and secondly, as credit
taken in the profit and loss account by inclusion of the specified duty on input as part of value of
inventory of the input.
391
At the time of transfer to the MODVAT Credit Receivable Account, the MODVAT credit receivable
should be reviewed and if it is found that the MODVAT credit is not likely to be used in the normal
course of business within a reasonable time or it is revealed that the terms and conditions subject
to which the benefit of MODVAT credit is available, have not been complied with or are not being
capable of compliance, then such credit should not be transferred to MODVAT Credit Receivable
Account.
392
393
394
Disclosure should be with an appropriate narration to indicate that the enterprise does not have full
ownership thereof [Accounting Standard (AS) 10, Accounting for Fixed Assets].
396
For accounting treatment of excise duty with regard to valuation of inventories, reference may be
made to the Guidance Note on Accounting Treatment for Excise Duty, issued by the Institute of
Chartered Accountants of India (Published in The Chartered Accountant, July 2000).
399
ANNEXURE A
400
Units
Rate Amount
By Sales
10
10
100
100
110
10
10
1,000
1,100
Less: Stock of
Raw Materials
40
10
400
To Excise Duty
70
To Purchases of
Raw Materials
Particulars
70
15
1,050
700
210
To Gross Profit
140
1,050
1,050
Note
1.
Opening balance of the MODVAT/CENVAT Credit Receivable Account is
Rs. 20/-.
2.
Besides showing stock of raw materials at Rs. 400/-, the Balance Sheet
would also reflect, MODVAT/CENVAT Credit Receivable Account at Rs. 10/-,
arising out of the following entries:
(a)
Purchase A/c
MODVAT/CENVAT Credit Receivable A/c
To Sundry Creditors
Dr.
Dr.
1,000
200
1,200
(Being the purchase of 100 units at Rs. 10/- plus Rs. 2/- for excise duty in
respect of which the company is eligible to claim MODVAT/CENVAT credit)
(b)
Dr.
210
210
401
Amount Assets
Amount
400
10
402
ANNEXURE B
Units
Rate
Amount
10
12
120
100
12
1,200
110
12
1,320
40
12
480
70
12
840
70
140
70
10
700
70
210
To Opening Stock
of Raw Materials
Particulars
By Sales
Units
70
Rate Amount
15
1,050
To Purchases of
Raw Materials
To Excise Duty
To Gross Profit
140
1,050
1,050
Note:
(1)
(2)
Besides showing stock of raw material at Rs.480, the balance of MODVAT
Credit Availed Account would be Rs.70, arising out of the following entries:
403
Dr.
Rs. 210
Rs. 210
(Being the payment of excise duty from the MODVAT Credit available to the
company)
(b)
At the year end, to the extent raw material items have been consumed in
the production:
MODVAT Credit Availed A/c
To Material Consumed
Dr.
Rs. 140
Rs. 140
(Being the set off the MODVAT credit availed against materials consumed)
Balance Sheet
Liabilities
Amount Assets
Amount
480
70
410
In the above example, the RG 23A register would show a balance of Rs.10
representing the MODVAT credit receivable in respect of inputs purchased.
Now the enterprise changes the accounting policy to that recommended in
paragraph 16 the Guidance Note. In that case, the following journal entries will
be passed (See paragraph 19):
I.
Dr.
Rs. 70
Rs. 70
(Being the opening stock adjusted by the balance of MODVAT Credit Availed
Account).
404
Dr.
Rs. 10
Rs. 10
405