Deemed output service treatment allows Cenvat credit to be used for service tax on Goods Transport Agency services.

Rule 2(p) of the Cenvat Credit Rules, 2004 creates a deeming fiction for a person liable to pay service tax on received taxable services, treating that service as an output service. On that basis, a manufacturer receiving Goods Transport Agency services may be regarded as a deemed output service provider and may utilise available Cenvat credit to discharge the service tax liability, even though it does not itself provide a taxable output service. The provision was applied to preserve the credit mechanism where statutory conditions are satisfied.

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Issues: Whether a manufacturer receiving Goods Transport Agency services and deemed liable to pay service tax can be treated as a provider of output service for the purpose of availing Cenvat credit to discharge that liability.

Analysis: Rule 2(p) of the Cenvat Credit Rules, 2004 creates a deeming fiction for a person who does not provide a taxable service or manufacture a final product but is liable to pay service tax, treating the service for which such tax is payable as output service. The earlier binding decision relied upon by the Court held that this deeming provision extends the benefit of Cenvat credit adjustment to the recipient of GTA services, because the credit mechanism under the Cenvat regime is intended to permit discharge of service tax liability through available credit where the statutory conditions are satisfied.

Conclusion: Yes. The manufacturer liable to pay service tax on GTA services is to be treated as a deemed output service provider and may utilise Cenvat credit for discharging that liability.

Ratio Decidendi: The deeming fiction in Rule 2(p) of the Cenvat Credit Rules, 2004 permits a person liable for service tax on received taxable services to use available Cenvat credit for payment of that tax, even if the person does not himself provide a taxable output service.

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