UNDERSTAND WHAT IS CENVAT CREDIT
You are entitled to take CENVAT Credit of the excise duty paid on inputs, capital goods, service tax paid on input service
for taking credit of the same you have to maintain separate registers like INPUT REGISTER, INPUT SERVICE REGISTER PART- I & II, CAPITAL GOODS REGISTER etc.
you have to maintain duly records of clearances of final products and the same have to be cleared on issue of C.Ex.invoice as prescribed in C.Ex.Rules and you can debit the duty at the end of month in your register instead ot paying it in cash.
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.
EXAMPLE
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
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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
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