Input service credit allowed for cylinder inspection and certification linked to safe CNG filling and sale.

Service tax paid on cylinder inspection and certification used for filling compressed natural gas cylinders qualified as input service under Rule 2(l) of the CENVAT Credit Rules, 2004. The service was necessary before CNG could be dispensed or sold because cylinders had to be certified fit for use, and this nexus with manufacture and business activity was not broken merely because the certification occurred outside the factory. Cenvat credit was therefore admissible.

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Issues: Whether service tax paid on cylinder inspection and certification services used for filling compressed natural gas cylinders is eligible as Cenvat credit under Rule 2(l) of the CENVAT Credit Rules, 2004.

Analysis: The definition of input service covers services used directly or indirectly in or in relation to manufacture and also services used in relation to activities relating to business. The certification of cylinders was held to be a necessary condition for filling and sale of CNG, because gas could not be dispensed unless the cylinders were certified fit for use. The fact that the certification was undertaken outside the factory premises did not negate the nexus with the assessee's manufacturing and business activity. The safety requirement of certified cylinders also supported the conclusion that the service had a sufficient connection with the business of selling CNG.

Conclusion: The service tax paid on cylinder inspection and certification services qualified as input service and Cenvat credit was admissible to the assessee.

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