Cenvat credit cannot be used for GTA tax liability where the recipient is not the output service provider.

Cenvat credit could be used only in the manner permitted by the credit rules, and service tax payable by a recipient of Goods Transport Agency services under a legal fiction was not tax on an output service provided by that recipient. As the recipient did not become the provider of the taxable transport service, the liability could not be discharged through Cenvat credit and had to be paid in cash. The demand for cash payment was therefore unsustainable, and the penalty did not survive.

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Issues: Whether the recipient of Goods Transport Agency services could discharge the service tax liability by utilising Cenvat credit, and whether such liability had to be paid in cash.

Analysis: Rule 3(4) of the Cenvat Credit Rules permits utilisation of credit for specified payments, including service tax on output service. The recipient of GTA service was liable to pay service tax by legal fiction, but did not itself become the provider of the taxable service. The transport service remained a service rendered by the GTA, and the recipient's liability could not be treated as payment of tax on an output service for the purpose of credit utilisation.

Conclusion: The recipient was not entitled to use Cenvat credit to pay the service tax on GTA services, and the demand requiring payment in cash was unsustainable.

Final Conclusion: The demand and penalty did not survive, and the appeal succeeded.

Ratio Decidendi: Cenvat credit can be utilised only in the manner permitted by the credit rules, and service tax payable by a recipient under a legal fiction for GTA services is not tax on an output service provided by that recipient.

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