Cenvat credit may be used to pay service tax on transport services treated as output service.

Rule 3(4) of the Cenvat Credit Rules, 2004 permits Cenvat credit to be used for payment of excise duty and service tax on output service. For transport services treated as output service, a manufacturer paying service tax is regarded as a service provider for that limited purpose, so the transport service qualifies as output service. The contrary view that a manufacturer of excisable goods cannot use such credit for service tax on transport services is not sustainable, and the credit is therefore usable for that payment.

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Issues: Whether service tax credit under Rule 3(4) of the Cenvat Credit Rules, 2004 could be utilised for payment of service tax on transport services treated as output service.

Analysis: Rule 3(4) permits utilisation of Cenvat credit for payment of excise duty as well as service tax on any output service. A manufacturer who pays service tax on transport service is treated as a service provider for that purpose, and the transport service qualifies as an output service. The view that a manufacturer of excisable goods cannot utilise such credit for payment of service tax on transport services is therefore not sustainable.

Conclusion: The issue is decided in favour of the assessee, and the credit was held to be utilisable for payment of service tax on the relevant transport services.

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