Pitfalls of MODVAT scheme


 Pitfalls of MODVAT scheme 


Under the present system of indirect tax collection there are relaxations in procedural aspect and the MODVAT scheme tops the list. Though the scheme is to enable the manufactures to enjoy the facility after compiling with the prescribed procedure and documentation the actual result is reported misuse by a section of the manufactures.


The words ‘Input used in or in relation to the manufacturer Of final product’ used in rule 57A result the endless disputes. It is also reported that credit is being availed without physically bringing the inputs into the factory. Even though there is no one to one co-relation between the inputs and final product, this concession is wrongly interrupted to avail the credit taken on inputs which have been used in exempt final products as well.


It is however interesting to note that after March, 95 a few more relaxation in procedurals compliance have been announced. The major change in MODVAT procedure was the introduction of invoice as the only duty paying document and withdrawal of the host documents such as Gate pass or subsidiary gate pass or endorsed gate pass with effect from 4-7-94 which added to the prevailing confusion. A new rule 57GG was inserted to regulate invoice by dealers and importers. It can therefore be said that the success or failure of MODVAT scheme is to a greater extent in the hands of departmental officers who monitor the actual working of the scheme.

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