Excise duty is a central tax levied on manufactured goods. Purchase price of raw materials includes excise duty. On the other hand, excise duty is levied on goods manufactured by the entity as soon as they are issued from warehouse.
In many developed countries, value added tax system is in vogue which levies tax only on the value added portion. Value added is given by selling price minus bought in materials and services.
To mitigate the effect of double tax effect, MODVAT credit is allowed. By this excise duty paid on inputs can be adjusted against excise duty charged on output.
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