Understanding Cenvat Credit
The credit that can be claimed by a manufacturer, producer of final products, or a provider of taxable services is called Cenvat credit. Cenvat credit can be applied against both excise and service taxes for these types of items:
Excise duty on a final product (for manufacturers or producers of final products only)
Inputs and capital goods, if they are removed or are being partially processed
For these item types, you can apply the amount equal to the Cenvat credit to the tax payment
Service tax on any output services (for providers of taxable and exempted services only)
For this item type, you can apply Cenvat credit if you maintain separate accounts for the receipt, consumption, and inventory for the taxable service, and nontaxable services. If separate accounts are not maintained, only 20 percent of the credit can be applied for payment of service tax.
You use the Credit Redistribution process after you run both the purchase order and sales order cycles. The Credit Distribution program (P75I012) and the Credit Distribution - Services program (P75I013) pass the amount and the account details to create a pair of credit and debit entries in the Account Ledger table (F0911) for the amounts being redistributed. The system generates and displays a batch number when the F0911 table entries are made.