Cenvat credit on drinking water testing

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 May 2012 Dear Sir,

Please clarify:

Can we avail servicetax credit on the amount charged for testing the drinking water supplied in the factory premises.

Please do clarify ,,,

Thank you.

PUNEET GOYAL

PUNEET GOYAL (Expert)
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29 May 2012 According to me yes. As per rule 2(l) of CENVAT Credit Rules, 2004 input service, inter alia, means any service

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises,

I think we can argue that it is used in modernization etc of factory.

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2012 is it valid if we argue that it is a "legal requirments of the comapany".

Plz do clarify,

Thank you

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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19 July 2024 Availing CENVAT credit on services related to testing of drinking water supplied in factory premises can be complex and typically depends on how it aligns with the definition of "input services" under the CENVAT Credit Rules, 2004. Here are the key considerations:

### Eligibility Criteria for CENVAT Credit:

1. **Input Service Definition**: As per Rule 2(l) of the CENVAT Credit Rules, 2004, "input service" means any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal.

2. **Direct or Indirect Use**: The service must have a direct or indirect nexus with the manufacturing activity. Generally, services that are used in the administration or in compliance with legal requirements are not considered eligible unless they have a direct impact on the manufacturing process or factory operations.

3. **Nature of Service**: Testing of drinking water, while essential for compliance with legal requirements and ensuring employee health and safety, may not directly qualify as an input service unless it can be shown to directly affect the manufacturing process or the quality of the final product.

### Specific Considerations for Drinking Water Testing:

- **Legal Requirement Argument**: Claiming that drinking water testing is a legal requirement is a valid consideration. However, for CENVAT credit eligibility, it must be demonstrated that the testing directly contributes to the manufacturing process or is integral to maintaining the factory's operations.

- **Factory Premises**: If the testing is conducted within the factory premises and is mandated by regulatory authorities for compliance purposes, there could be a case made for indirect use in relation to the factory operations.

### Documentation and Compliance:

- **Invoices and Documentation**: To claim CENVAT credit, you would need proper invoices from the service provider detailing the service tax component charged for the drinking water testing. The invoice should clearly indicate the nature of the service provided and its relevance to your factory operations.

- **Consultation with Experts**: Given the specific nature of your industry and the legal requirements, it's advisable to consult with a tax advisor or your chartered accountant. They can provide guidance based on the specific facts of your case and ensure compliance with the CENVAT Credit Rules.

### Conclusion:

While testing of drinking water is essential for compliance and legal purposes, claiming CENVAT credit on such services can be challenging unless it can be convincingly demonstrated that they contribute directly or indirectly to the manufacturing process or factory operations. Ensure all documentation is in order and seek professional advice to maximize your eligibility while adhering to legal requirements.