CENVAT credit may be used to pay service tax on Insurance Auxiliary Service where the recipient is deemed the provider.

Service tax payable by the recipient on Insurance Auxiliary Service is treated, for CENVAT credit purposes, as tax on output service because the deeming provisions under the service tax scheme regard the recipient as the provider of taxable service. The omission of the explanatory clause in the amended definition did not change that position. No one-to-one correlation is required between the input service and the output service under the CENVAT credit scheme, so CENVAT credit could be used to discharge the liability and the demand was unsustainable.

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Issues: Whether the service recipient liable to pay service tax on Insurance Auxiliary Service is to be treated as the provider of output service for purposes of CENVAT credit, and whether credit of service tax paid on input services can be utilized for discharge of that liability.

Analysis: The liability to pay service tax on Insurance Auxiliary Service falls on the service recipient under the relevant service tax rules. The definition of output service and provider of taxable service, read with the deeming provision under the service tax scheme, treats such recipient as the provider of taxable service for CENVAT credit purposes. The omission of the explanatory clause in the amended definition did not alter the legal position. There is also no requirement of one-to-one correlation between the input service and the output service under the CENVAT credit scheme.

Conclusion: The assessee was entitled to utilize CENVAT credit for payment of service tax on Insurance Auxiliary Service, and the demand was unsustainable. The appeal on merits was allowed.

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