Custom, Excise & Service Tax Tribunal
Ms Mahle Engine Ccmponents India Pvt Ltd vs Chennai-Iii on 24 September, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Excise Appeal No. 41491 of 2016
(Arising out of Order-in-Original No. 03/2016(CE) dated 19.02.2016 passed by Commissioner
of Central Excise, No. 26/1, Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034)
M/s. Mahle Engine Components India Pvt. Ltd. ...Appellant
(Previously known as M/s. Mahle IPL Limited),
A-4, Industrial Estate, Maraimalai Nagar,
Kancheepuram - 603 209.
Versus
Commissioner of GST and Central Excise ...Respondent
Chennai North Commissionerate,
No. 26/1, Mahatma Gandhi Road,
Nungambakkam,
Chennai - 600 034.
APPEARANCE:
For the Appellant : Ms. Charulatha, Advocate
For the Respondent : Mr. Sanjay Kakkar, Authorised Representative
CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL)
FINAL ORDER No. 41042 / 2025
DATE OF HEARING : 01.04.2025
DATE OF DECISION : 24.09.2025
Per Mr. VASA SESHAGIRI RAO
M/s. Mahle Engine Components India Pvt. Ltd.
who is the appellant herein in this appeal, is engaged in the
manufacture of Pistons for Petrol and Diesel Engines falling
under Chapter 84 of the Central Excise Tariff Act, 1985. The
appellant was a joint venture company of M/s. Mahle Holding
India Pvt. Ltd. (hereinafter referred to as "Mahle") and M/s
India Pistons Limited (hereinafter referred to as "IPL"). In
terms of the Share Purchase Agreement (hereinafter referred
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to as "SPA") made on 24.12.2013 between Mahle and IPL
(including its affiliates Simpsons & Company Limited and
Amalgamations Private Limited), IPL and its affiliates
transferred their entire shareholdings in the joint venture to
the appellant on 24.12.2013. Consequently, the joint venture
agreement was terminated and Mahle became the sole
owner of the appellant firm.
2.1 Schedule 3 of the SPA contained a non-compete
clause and other conditions, which are summarized below: -
i. the appellant and IPL (including its affiliates Simpsons &
Company Limited and Amalgamations Private Limited)
agreed for transfer of certain products/agreements with
Indian OEMs to IPL.
ii. the appellant agreed not to compete for the products
listed in paragraph 1.1 of Schedule 3 of the SPA for 3
years to enable IPL to produce automotive pistons.
Further, the appellant agreed not to solicit, quote,
manufacture or supply the said products during the no
competition period of 3 years.
iii. the appellant agreed that for the products listed in
paragraph 1.1 of Schedule 3 of the SPA, IPL shall have
direct contact to the customer.
iv. the appellant agreed that all appellant's inventory and
pipeline supplies of parts, materials, components etc. for
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the products listed in paragraph 1.1 of Schedule 3 of the
SPA to be purchased by IPL at the current purchase
price before IPL commences serial supply to the
customer.
v. IPL agreed that no gallery cooled piston process to be
implemented by IPL/IPL's Affiliates for 2 years from the
Termination Date. Exception is the Super Ace piston
only, which can be implemented and supplied for the
Super Ace vehicle only.
vi. the appellant agreed for sale/transfer of assets listed in
paragraph 2.1 of Schedule 3 of the SPA to IPL.
vii. IPL and its affiliates acknowledged and confirmed that
the appellant have the sole right to manufacture and
supply automotive and non-automotive pistons,
(including assemblies where applicable), to all
multinational customers, including those listed in the
SPA.
viii. IPL and its affiliates acknowledged that the appellant
have made huge capital and know-how investments to
develop products for its customers. Accordingly, IPL and
its affiliates agreed not to solicit, quote, manufacture or
supply pistons to multinational customers for an initial
period of 3 years from the Termination Date in the
domestic or overseas markets;
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ix. IPL and its affiliates agreed that the appellant shall have
the sole contact to the customer for the items not
transferred, (including assemblies if applicable), with
two exceptions as detailed in paragraph 3.3 of Schedule
3 of the SPA.
x. the appellant agreed that IPL can continue to supply
Euro 1, 2 & 3 compliant OES pistons to the customer
marked with (**) in paragraph 3.1 of Schedule 3 of the
SPA.
xi. IPL and its affiliates acknowledged and confirmed that
the appellant has and shall continue to have the sole
right to manufacture and supply pistons, including
assemblies where applicable, to the Indian customers,
viz. Tata Motors and Mahindra and Mahindra.
xii. Considering the huge capital and know-how
investments made by the appellant, IPL and its affiliates
agreed not to solicit, quote, manufacture or supply any
automotive pistons to Mahindra & Mahindra or to Tata
Motors directly or indirectly which are not listed in
paragraph 1.1 of Schedule 3 of the SPA, and / or that
are in development or in serial production in appellant's
company as of October 3, 2013 including any future
upgrades/downgrades or variants (e.g. from gallery to
non-gallery) for a period of 3 years from the Termination
Date.
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xiii. IPL and its affiliates agreed not to solicit for or quote
directly or indirectly any new gallery cooled pistons
(except Tata Motors - Super Ace) during the said 3 year
period.
xiv. IPL and its affiliates agreed that for the pistons
retained in appellant's company for Indian Customers
Mahindra and Mahindra and Tata Motors which are not
included in paragraph 1.1 of Schedule 3 of the SPA, and
/ or that are in development or in serial production in
the appellant's company, contact with and direct access
by IPL and its affiliates to these customers shall be
restricted to rings only.
xv. the appellant agreed not to solicit, quote, manufacture
or supply pistons for tractors that were being produced
as on the date of the SPA or were under development by
IPL, which are listed in paragraph 5 of Schedule 3 of the
SPA, for 3 years from the Termination Date. However,
there was no restriction on the appellant to supply all
multinational customers including tractor manufacturers.
xvi. IPL and its affiliates agreed to ensure that in case they
entered into any joint venture, technical or financial
agreement / arrangement, it will not violate the terms
agreed under the SPA.
xvii. the appellant and IPL, including its affiliates, agreed
and acknowledged that the restrictions and covenants
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under the SPA were (a) short term and temporary in
nature; (b) essential for recoupment of the investments
made in the appellant, for realizing the full value of
investments proposed to be made in the appellant, for
enabling the appellant to recover its losses, for achieving
the basic objective of formation of the Appellant firm and
for continued subsistence of operations of the Appellant
firm; and (c) essential to protect the technology and
know-how infused in the Appellant firm with respect to
the customers and products mentioned in the SPA.
xviii. the appellant and IPL, including its affiliates, agreed
and acknowledged that the appellant was incurring
losses in its business and investments and that the
restrictions and covenants under the SPA were
necessary for the appellant to sustain its operations and
to realize the full potential and benefits of the
technology and know-how infused into the appellant for
production and supply of technically advanced products
(design and development of pistons compliant with Euro
4 emission norms and above) at competitive costs to the
Indian market.
xix. the appellant and IPL, including its affiliates, further
agreed and acknowledged that the restrictions and
covenants under the SPA were (a) essential for providing
gestation period to IPL for building its own capacity; (b)
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essential for IPL to be able to cater to the needs of the
customers and products mentioned in the SPA; and (c)
necessary for effective implementation of the Technical
Assistance Agreement whereby the appellant has agreed
to provide certain technical information/ technical
assistance to IPL for manufacturing and supply of certain
products mentioned in the SPA.
2.2 In consideration of the obligations undertaken
under the SPA, the appellant paid a mutual obligation fee of
Rs.10,00,00,000/- (Ten Crores only) to IPL, for which IPL
had raised a Debit Note / Bill No. 34655 dated 31.12.2013
for the said amount of Rs. 10 Crores along with applicable
Service Tax of Rs.1,23,60,000/- (Rupees One Crore Twenty
Three Lakhs Sixty Thousand only). The appellant availed
Cenvat credit of the above amount of service tax in the
month of May 2014.
3. Show Cause Notice No. 20/2015 dated
08.06.2015 was issued to the appellant by the Commissioner
of Central Excise-III, Chennai where it was proposed to (a)
recover the said Cenvat Credit of Rs. 1,23,60,000/- (Rupees
One Crore Twenty Three Lakhs Sixty Thousand only) in
terms of Rule 14 of Cenvat Credit Rules, 2004 read with
Section 11A(4)(e) of the Central Excise Act, 1944, on the
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ground that the same was availed in contravention of Rule 3
read with Rule 2(l) and 9(1) of Cenvat Credit Rules, 2004;
(b) demand interest on the above amount of Cenvat Credit in
terms of Rule 14 of Cenvat Credit Rules, 2004 read with
Section 11AA of the Central Excise Act, 1944; and (c) impose
penalty on the appellant in terms of Rule 15(2) of Cenvat
Credit Rules, 2004 read with Section 11AC of the Central
Excise Act, 1944.
4.1 After following due process of adjudication, the
impugned order was passed confirming the entire demand of
Cenvat Credit, along with interest, on the following
grounds: -
i. The obligations created on M/s IPL in terms of the SPA
are intended to protect the existing volume of sales of
pistons/auto components manufactured by the
appellant to their existing customers and the restraint
created on M/s IPL, who is a competitor to the
appellant, through mutual obligation agreement could
never be termed as sales promotion intended for
increasing sales to the appellant's products.
ii. The scope of the definition of 'Input Service' appearing
in the Cenvat Credit Rules does not cover services by
way of non-compete agreement.
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iii. A non-compete agreement is generally intended to
protect the existing market/territory and the same has
nothing to do with the actual manufacture of the final
product, in this case, pistons.
4.2 However, the demand was confirmed under Rule
14 of Cenvat Credit Rules, 2004 read with Section 11A(1) of
the Central Excise Act, 1944 instead of Section 11A(4)(e)
invoked in the show cause notice by holding that there is no
evidence to conclude that the appellant had wilfully
suppressed the facts or had contravened the provisions with
intent to evade payment of duty. Similarly, penalty was
imposed on the appellant under Section 11AC(1)(a) of the
Central Excise Act, 1944 instead of Section Rule 15(2) of
Cenvat Credit Rules invoked in the Show Cause Notice.
5. The appellant has preferred the present appeal
assailing the impugned order.
6. The Ld. Advocate Ms. Charulatha appeared and
argued for the appellant and submitted that the service of
non-compete will qualify as input service within the "means
clause" under Rule 2(l) of CCR, 2004. Hence, Credit is rightly
availed.
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7. It is submitted by the Learned Advocate that
Clause 3 and 4 of Schedule 3 of the SPA clearly states that
the Appellant will have the sole right to manufacture and
supply pistons to the multi-national customers and Indian
Customers listed in the said clauses whereas, IPL, will have
the sole right to manufacture and supply pistons to Indian
OEM's listed in clause 1 of Schedule 3 of the SPA.
8. The Ld. Advocate further submitted that IPL
acknowledged that the Appellant has made huge investments
in the capital and know-how investment of the Company and
therefore, IPL undertook to not manufacture, solicit, quote,
and supply pistons to the said customers for period of 3
years. In consideration of the aforesaid reciprocal obligations
agreed to be undertaken by the Appellant and IPL as per the
SPA, the parties mutually agreed that the Appellant would
pay an amount of Rs. 10 Crores to IPL.
9. Therefore, the said amount was paid by the
Appellant to IPL to eliminate direct competition, thereby
directly incurring their overall market share. Furthermore, on
payment of the said amount of Rs. 10 Crores, the Appellant
retained with themselves the technical know-how and the
sole right to manufacture and supply the pistons for a period
of 3 years.
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10. The Learned Advocate contended that the
consideration of Rs. 10 Crores paid by the Appellant for the
service provided by IPL is directly linked to their activity of
manufacture of pistons, which is their business, in as much
as the Appellant utilizes this service directly by preventing
risk of competition from a business engaged in similar
activity and protecting their capital investment and technical
know-how which is crucial for their manufacturing activity.
Therefore, the activity will qualify as a service which is
directly used in or in relation to the manufacture of pistons
by the Appellant under Rule 2(l) of the CCR, 2004.
11. It is argued by the Learned Advocate that the
scope of the term "in or in relation to" mentioned in the
definition of input service is wide and the service need not be
utilised directly in the manufacture of the final product for it
to be considered under the "means clause". In this regard, it
is submitted that it is the settled law that any activity
concerned with or pertaining to manufacturing goods will
also qualify as input service. She placed reliance upon the
judgment of Union Carbide India v. CCE, Calcutta-I, 1996
(86) E.L.T. 613 (Tribunal) wherein, it was held that the
expression "used in relation to manufacture" must be
allowed its natural play so as to also attract goods, which did
not directly or indirectly enter into the "final product but
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were used in any activity concerned with or pertaining to the
manufacture of the final products".
12. She further submitted that the service received
by the Appellant has direct nexus with their manufacturing
activity as it gives them the sole right to manufacture and
supply pistons to customers without risk of competition and
also protects their capital and know-how investments. Thus,
the service is squarely covered under the "means clause" of
the definition of input services under Rule 2(l) of the CCR,
2004.
13. The Ld. Advocate averred that the aforesaid
submission was made by the Appellant at the stage of their
reply to the SCN and the Impugned Order also records the
same in Paragraph 10 to 18. However, the operative portion
of the Impugned Order fails to record any finding on the
submission made by the Appellant that their case fits into
the "means clause" of the definition of input services under
Rule 2(l) of the CCR, 2004. The synopsis filed by the
Respondent also does not deal with the said submission.
Therefore, the Impugned Order is illegal and non-speaking.
Hence, the Impugned Order confirming the reversal of
Cenvat Credit merits to be set aside on this ground itself.
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14. The Ld. Advocate contended that the service
provided by IPL will be covered under the "includes" clause
under Rule 2(l) of CCR, 2004 as "sales promotion". Hence,
Cenvat credit cannot be denied. She submitted that the
service of non-compete provided by IPL to the Appellant will
be covered under the "inclusive" clause of the definition of
input service under the expression "sales promotion". In this
regard, it is submitted that "sales promotion" has not been
defined under the CEA, 1944 and the CCR, 2004. However,
the Oxford Dictionary of Business defines "sales promotion"
to mean an activity designed to boost the sales of a product
or service.
15. Under such circumstances, it is submitted that
IPL by agreeing to forbear itself from doing an identical
business with multi-national corporations and domestic
clients has increased the sale of Appellant's products to
customers by eliminating the risk of competition. In this
regard, reliance is placed on the case of CIT v. Ingersoll
Rand International 2014 (6) TMI 934-Karnataka High Court,
wherein, it was held that on payment of non-compete fee,
the taxpayer gets a monopoly to run the business by
eliminating competition. The relevant extract of the said
decision is extracted hereunder: -
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"8. ... ... ... ...A non-compete right encompasses a right
under which one person is prohibited from competing in
business with another for a stipulated period. It would be
the right of the person to carry on a business in
competition but for such agreement of non-compete.
Therefore the right acquired under a non-compete
agreement is a right for which a valuable consideration is
paid. This right is acquired so as to ensure that the
recipient of the non-compete fee does not compete in any
manner with the business in which he was earlier
associated. The object of acquiring a know-how, patents,
copyrights, trade marks, licences, franchises is to carry on
business against rivals in the same business in a more
efficient manner or to put it differently in a best possible
manner. The object of entering into a non-compete
agreement is also the same ie., to carry on business in a
more efficient manner by avoiding competition, atleast for
a limited period of time. On payment of non-compete, the
payer acquires a bundle of rights such as restricting
receiver directly or indirectly participating in a business
which is similar to the business being acquired, from
directly or indirectly soliciting or influencing clients or
customers of the existing business or any other person
either not to do business with the person who has acquired
the business and paid the non-compete fee or to do
business with the person receiving the non-compete fee to
do business with a person who is directly or indirectly in
competition with the business which is being acquired. The
right is acquired for carrying on the business and therefore
it is a business right ... ... ... ... ... ... When by payment of
non-compete fee, the businessman gets his right what he
is practically getting is kind of monopoly to run his
business without bothering about the competition.
Generally, non-compete fee is paid for a definite period.
The idea is that by that time, the business would stand
firmly on its own footing and can sustain later on. This
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clearly shows that the commercial right comes into
existence whenever the assessee makes payment for non-
compete fee. Therefore that right which the assessee
acquires on payment of non-compete fee confers in him a
commercial or a business right which is held to be similar
in nature to know-how, patents, copyrights, trade marks,
licences, franchises. Therefore the commercial right thus
acquired by the assessee unambiguously falls in the
category of an 'intangible asset'."
16. Thus, it was argued that from the above, it can
be inferred that the service received by the Appellant from
IPL would qualify as input service under Rule 2(l) of the CCR,
2004 being a service relating to "sales promotion". However,
the Impugned Order has failed to consider the same and has
confirmed the reversal of Cenvat Credit merely on the
ground that the mutual obligation fee is paid with an
intention to protect the "existing volume" of sales of pistons
manufactured by the Appellant and therefore, it cannot be
equated with the activity of sales promotion.
17. In this regard, it is submitted that "sales
promotion" includes an activity which is designed to boost
the sales of the product in the intended market. It is
submitted that such boosting sales need not necessarily
create a new market, and the said expression shall also refer
to the activity of boosting the sales within the existing
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market. Therefore, the amount paid to IPL for not competing
with the Appellant in manufacturing and selling the product
in the intended market leading to the direct increase in sales
of the Appellant in that intended market is undoubtedly a
consideration paid to boost the sales of the Appellant
therefore, the activity squarely falls within the scope of the
definition of "sales promotion".
18. The Appellant submits that in light of the
aforesaid submissions, since the demand for reversal of
Cenvat Credit cannot be sustained, the consequential
imposition of interest and penalty also merits to be set aside.
19.1 Per contra, Mr. Sanjay Kakkar, the Learned
Authorized Representative for the Revenue submitted that
though it is true the higher judiciary has provided a wide
amplitude to the definition of "input service" considering the
exhaustive and inclusive part of the definition, in the
impugned case, there appears not even a feeble touch
between the Mutual Obligation Fee and the claimed activity
of 'sales promotion'.
19.2 Learner AR contended that Cenvat credit scheme
is a beneficial piece of legislation which allows for credit in
respect of the taxes paid on the input service and capital
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goods used by the manufacturer/service provider to be
utilised for payment of central excise duty or service tax in
respect of the goods manufactured and cleared or the output
services provided.
19.3 The Ld. AR relied on the decision rendered
in case of Mall of Joy Pvt Ltd & Ors Versus Union of India,
Central Board of Indirect Taxes and Customs & Ors [2024
(87) G.S.T.L. 4 (Ker.)] to submit that the nature of the claim
for Input Tax Credit is in the nature of concession or
entitlement, which is not an absolute right and is subject to
the conditions and restrictions. The Learned AR referred to
the following observations of the Hon'ble High Court: -
"The Input Tax Credit is in the nature of a benefit or
concession extended to the dealer under the statutory
scheme. Even if it is held to be an entitlement, this
entitlement is subject to the restrictions as provided under
the Scheme or the Statute. The claim to Input Tax Credit is
not an absolute right, but it can be said that it is an
entitlement subject to the conditions and restrictions......"
In this regard, Learned AR placed further reliance on the
decision of the Hon'ble Supreme Court in Union of India &
Ors Vs VKC Footsteps (I) (P) Limited [(2022) 2 SCC 603]
wherein it is held that "......it is a trite law that whenever
concession is given by a statue the conditions thereof are to
be strictly complied with in order to avail such concession...
......".
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19.4 The Learned AR argued that the onus to prove
that the Mutual Obligation Fee has been paid for "sales
promotion" activity and the said "sales promotion" activity is
used by the manufacturer, whether directly or indirectly for
manufacture of the final product is on the claimant-
Appellant, failing which it ought to be denied.
19.5 The Learned AR pointed out that the SPA does
not contain even a single word that would indicate any
linkage whatsoever with the words, 'sales promotion', as
defined by the appellants citing various books on marketing
management and dictionaries.
19.6 It is further submitted by the Learned AR that in
the instant case, it is seen that no activity whatsoever has
been described in the SPA which could even be remotely held
to fall in the ambit of 'sales promotion'. In this regard, he
submitted that the definition and meaning of 'sales
promotion' has been thoroughly analysed by the Hon'ble
Gujarat High Court in the case of Commissioner of Central
Excise, Ahmedabad - II Vs M/s Cadila Health Care Ltd. [2013
(30) S.T.R. 3 (Guj.)]. The Learned AR referred to the
following observations of the Hon'ble High Court in para 5.2
as follows: -
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"5.2
(vii) The expression 'sales promotion' has been defined in
the 'Oxford Dictionary of Business' to mean an activity
designed to boost the sales of a product or service. It may
include an advertising campaign, increased PR activity, a
free-sample campaign, offering free gifts or trading
stamps, arranging demonstrations or exhibitions, setting
up competitions with attractive prizes, temporary price
reductions, door-to-door calling, telephone selling,
personal letters etc. In the "Oxford Dictionary of Business
English", sales promotion has been defined as a group of
activities that are intended to improve sales, sometimes
including advertising, organizing competitions, providing
free gifts and samples. These promotions may form part of
a wider sales campaign. Sales promotion has also been
defined as stimulation of sales achieved through contests,
demonstrations, discounts, exhibitions or trade shows,
games, giveaways, point-of-sale displays and
merchandising, special offers, and similar activities. The
Advanced Law Lexicon by P. Ramanatha Aiyar, third
edition, describes the term 'sales promotion' as use of
incentives to get people to buy a product or a sales drive.
..........................
(viii) From the definition of 'sales promotion', it is apparent that in case of sales promotion a large population of consumers is targeted. Such activities relate to promotion of sales in general to the consumers at large and are more in the nature of the activities referred to in the preceding paragraph..............."
19.7 The Ld. AR averred that it appears that 'sales promotion' is an overt activity, that involves i) goods / services, ii) a physical activity that stimulates demand, iii) a specific target market at which the said campaign/activity is 20 E/41491/2016 directed, iv) an incentive or inducement to taget consumers, etc. 19.8 It is the Ld. AR's contention that 'sales promotion' is a mechanism of boosting the sales, not one of elimination of competition or an increase of territory of operation, as has been enlisted in Schedule-3 of the SPA for which Mutual Obligation Fee has been paid. Merely because the end-result of 'sales promotion' and a 'no-compete or investment-protection arrangement' may be the same would not ipso facto mean that both are same and would fall in the inclusive part of the definition of 'input service'. 19.9 The Ld. AR further submitted that contrary to the nature of 'sales promotion' activities, the Mutual Obligation Fee paid is in the nature of investment or protection of investments in technical knowhow and a no-compete arrangement for protecting marketing territories, which do not fall in the definition of 'sales promotion' even in the definitions extracted by the appellant from various marketing management books or dictionaries. He averred that the purpose for which Mutual Obligation Fee has been paid does not involve any activity / element / purpose mentioned in the definition extracted of 'sales promotion' extracted by the appellant from (a) Philip Kotler's Book: Marketing 21 E/41491/2016 Management; (b) Achumba Iheanyi's Book: Sales Management Concepts; (c) George Jennifer's Book:
Contemporary Management; (d) Adrian Palmer's Book:
Introduction to Marketing Theory and Practice; (e) Bagavathi Pillai's Book: Modern Marketing; (f) Oxford Dictionary of Business English and Advanced Law Lexicon by P. Ramatha Aiyar, both of which were analysed by Hon'ble Gujarat High Court in the Cadila Healthcare citation referred earlier in para 19.6 supra.
19.10 It is argued by the Ld. AR that the Appellant has not been able to make out any case to place the purpose for which Mutual Obligation Fee has been paid into any of the parameters of the substantive as well as inclusive portion of the definition of 'input services', as given under Rule 2(l) of CCR. In this regard, he further referred to and relied on the following judgments: -
i. Gujarat State Fertilizers and Chemicals Ltd. Vs. CCE., CUS. & S.T. Surat-II [2016 (41) STR 794 (Guj)], wherein it was held that "A fleeting reference to attempt to sales-promotion would not change the very basic nature of agreement and the relations between the appellant and the stockist......"22
E/41491/2016 ii. Stanadyne Amalgamations Pvt. Ltd Vs Commissioner of Central Excise, Chennai [2011 (22) STR 344 (Tri.-
Chennai)], wherein it has been held that -
"7. In the present case, the appellants are manufacturing pumps for IC Engines. The learned Advocate canvasses that the expenses incurred for the purpose of maintenance of garden are in relation to the business activity and, therefore, the services so used for maintaining the gardens should be treated as input services. Every business enterprises (whether it is a proprietary concern or partnership firm or a company), which are in business treat all expenses as incurred towards business activities only except perhaps amounts which are given on charity. The definition of input services does not take such liberal view to go to the extent of treating all services utilized to be treated as input services. If the intention was to include such services, the definition of input services could have been made much simpler to include all services, which were paid for by the assessee. Further, the term 'input services' is a relative term and there should be some nexus between the services utilized and the activities of manufacture of final products. In the present case, the link is very remote. The claim of the appellants that the service of maintaining garden is indirectly used in relation to the manufacture is thus difficult to accept."
[Emphasis supplied] 19.11 The Ld. AR also relied on the judgment in the case of Willaimson Magor & Co. Vs Commissioner of Service Tax, Kolkata [2024 (3) TMI 404-CESTAT Kolkata] to submit that where there was no specific clause in the Agreement that indicated a promotion of the business of the Service 23 E/41491/2016 Recipient, the classification of the service could not be done and as a consequence of the same, the Cenvat credit could not be availed. He submitted that the impugned case is similar as no 'sales promotion' activity, as claimed by the appellant, is evident from any of the clauses of the SPA. 19.12 Further, the Ld. AR averred that the purpose for which Mutual Obligation Fee has been paid has no relation, either directly or indirectly, with the manufactured product. He submitted that it is seen from Clause 6.6 of Schedule-3 of the SPA that the appellant is already in the know of the technology for manufacturing the scheduled products viz. piston rings for automotive sector and in fact, have been manufacturing the same. He further submitted that the non- compete clauses for territorial and market allocations would have nothing to do with the manufacture of the products; that it is not that the products could not be manufactured without the SPA and that therefore, the claim of the Appellant that activity for which Mutual Obligation Fee has been paid is related to the manufactured product appears to fail. In this regard, he relied on the judgment of Hon'ble Gujarat High Court in the case of Commissioner of C.Ex & Cus. Vs. Gujarat Heavy Chemicals Ltd [2011 (22) STR 610 (Guj.)].
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E/41491/2016 19.13 The Ld. AR contended that the appellant had not sought any services of 'sales promotion' and the entity that issued the debit note is also not in the business of 'sales promotion'. Therefore, the integral connection test laid by Hon'ble High Court of Bombay in Commissioner Vs. Ultratech Cement Ltd [2010 (280) ELT 369 (Bom)] relied upon by the appellant fails.
19.14 It was further submitted by the Learned AR that in the case of United Telecom Ltd. Vs Commissioner of Central Excise, Bangalore-I [2014 (33) STR 357 (Kar)], citing the cases of Bombay High Court in Commissioner Vs. Manikgarh Cement [2010 (20) STR 456] and Supreme Court decision in the case of Maruti Suzuki Ltd Vs Commissioner [2009 (240) ELT 641 (SC)], it was held that incidental or ancillary activities to the main objects of the manufacture could not be considered as related to the manufactured product and hence, any credit on this count could not be granted. He submitted that the said citation is squarely applicable to the facts of the impugned case. 19.15 The Ld. AR relied on the case of Marmugao Port Trust Vs Commissioner of Customs, Central Excise and Service Tax, Goa [2016 (11) TMI 520 - CESTAT Mumbai] to submit that any payments of the nature of Royalty are not a 25 E/41491/2016 consideration for rendition of any service, but in fact represent a share of revenue arising out of a Joint-Venture being carried out between two partners. He argued that the 'Mutual Obligation Fee' paid in the impugned case is akin to Royalty in the case law cited and therefore, there is no service rendered in this case and the question of availing input credit on the same would not arise.
19.16 The Learned AR finally prayed for dismissal of the appeal and upholding of the impugned order.
20. The Ld. Advocate for the appellant made further arguments countering the submissions made by the Learned AR and the same are tabulated hereunder.
Rebuttals to specific submissions made by the Respondent during the hearing before the CESTAT, Chennai on 01.04.2025: -
S.No. Respondent's Appellant's rebuttals submissions
1. It was submitted It is submitted that in the case of Ultratech Cement, that IPL is not in the the Hon'ble Bombay High Court held that "the definition business of 'sales of "input service" is very wide and covers not only promotion'. services, which are directly or indirectly used in or in Therefore, the relation to the manufacture of final products but also integral connection includes various services used in relation to the business test laid by Hon'ble of manufacture of final products, be it prior to the High Court of manufacture of final products or after the manufacture Bombay in the case of final products. To put it differently, the definition of of Ultratech input service is not restricted to services used in or in Cement Ltd, 2010 relation to manufacture of final products but extends to (260) E.L.T. 369 all services used in relation to the business of (Bom.) fails. manufacturing the final products provided that they are integrally connected with the business of the Appellant."
Thus, any activity which is used in the business of 26 E/41491/2016 manufacturing the product is an input service. In the instant case, as submitted supra, the service of non- compete is integrally connected and directly interlinked to the Appellant's manufacturing activities in as much as without the said service, the Appellant will be constrained to share their business of manufacture of pistons with their direct competitors. Thus, the ratio of the decision of the Hon'ble Bombay High Court in the case of Ultratech is squarely applicable to the facts of the instant case and the Appellant satisfies the test laid down to classify the service of non-compete to an input service.
2. It was submitted At the outset, it is submitted that it is a settled law that that there was no the misclassification of service at the supplier's end specific clause in the cannot be a ground to deny Cenvat Credit to the SPA to indicate recipient. Reliance in this regard is placed on the case of promotion of the jurisdictional high court in M/s. Modular Auto business, thus, Limited v. Commissioner of Central Excise, 2018 classification of the (8) TMI 1691 - Madras high Court and the case of service could not be Gulf Oil Corporation Limited v. C.C.E. and S.T.- done. As a Vapi, 2023 (2) TMI 829 - CESTAT Ahmedabad.
consequence, Cenvat Therefore, the denial of Cenvat Credit merely on the
Credit could not be ground that the service of non-compete cannot be
availed. Reliance in classifiable at the supplier's end is not sustainable in as
this regard was much as the Department has not disputed the Service
placed on tax paid on the said service.
Williamson Magar It is further submitted that the reliance placed on the
& Co v. case of Williamson Magor is misplaced and incorrect
Commissioner of in as much as the said case is differentiable from the
Service Tax, instant case on the following grounds:
Kolkata [2024 (3) ➢ The issue in the said case is on the taxability of the
TMI 404-CESTAT non-compete fee received by the assessee under the
Kolkata]. category of Business Auxiliary Service and not on the
eligibility of Cenvat Credit. In this regard, it is settled law that a case is an authority for what it does and not what logically flows from it. Reliance in this regard is placed on the case of Sreenivasa General Traders v. State of AP, 1983 (9) TMI 315 -
Supreme Court.
➢ The demand in the said case pertains to the period prior to 01.07.2012. In this regard, without prejudice, it is submitted that post 01.07.2012, the service of non-compete received by the Appellant would fall under the ambit of Section 66E(e) of the Finance Act, 1944 i.e., agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
Thus, the facts of the aforesaid case are not applicable to the instant case and the Cenvat Credit availed by the Appellant cannot be recovered on this ground.
3. It was submitted It is submitted that assuming without admitting that the that "Mutual activity of non-compete is not a taxable service, the Obligation Fee" paid Appellant submits that it is settled law that Cenvat in the impugned Credit cannot be denied on the ground that the service case is akin to provider was not liable to pay service tax on the same. Royalty and not a Reliance in this regard is placed on the case of consideration of Commissioner of Central Excise, Pune v. Ajinkya rendition of any Enterprises, 2013 (294) E.L.T. 203 (Bom.). 27
E/41491/2016 service, therefore, Without prejudice, it is submitted that if the service of the question of non-compete is not taxable, the Cenvat Credit availed availing Credit for by the Appellant shall be treated as refund of tax the same by the erroneously paid to the Government and shall not be service-recipient recovered. Reliance in this regard is placed on the case would not arise. of Bajaj Allianz General Insurance Co. Limited v. Reliance in this Commissioner of Central Excise, Pune-III, 2015 regard was placed (37) S.T.R. 316 (Tri. - Mumbai), wherein, under on the case of similar facts, the Hon'ble Tribunal, in the context of Marmugao Port insurance auxiliary service held as follows:
Trust v. "From the above discussion, it is very much clear that Commissioner of the insurance auxiliary services provided by the agents Customs, Central in the State of Jammu & Kashmir are not taxable. Excise and Service Therefore, the appellants are not liable to pay Service Tax, Goa [2016 Tax for the said services of the insurance agents. In (11) TMI 520 - these terms, whatever credit is taken by the appellant is CESTAT Mumbai] nothing but the refund of tax erroneously paid by them.
....
With these observations, we hold that the appellant is entitled to take the Cenvat Credit in the facts and circumstances of the case."
It is submitted that the facts of the aforesaid case are squarely applicable to the instant case and therefore, if the contention of the Department is that the service of non-compete is not taxable, then, the appellant shall be permitted to treat the Cenvat Credit availed by them as refund of tax erroneously paid.
4. It was submitted It is submitted that the reliance placed on the decisions that the Appellant is misplaced in as much as the said cases are has not been able to differentiable on facts. make out any case In this regard, with respect to the case of Gujarat to place the purpose State Fertilisers and Chemicals, it is submitted that for which Mutual the said decision is rendered by placing reliance on the Obligation fee has case of Commissioner of Central Excise, Ahmedabad-II been paid into any of v. Ms Cadila Health Care Ltd. [2013 (30) S.T.R. 3 the parameters of (Guj.)] which has been reversed by the Hon'ble the substantive as Supreme Court in the case of Zydus Lifesciences well as inclusive Limited v. Commissioner of Central Excise, portion of the Ahmedabad-II, 2024 (80) G.S.T.L. 338 (S.C.). definition of 'input In light of the same, the said decision cannot be applied services', therefore, to the instant case. Cenvat credit is not With regard to the case of Stanadyne eligible. Reliance in Amalgamations, at the outset, it is submitted that the this regard was findings in the aforesaid case are not contrary to the placed on the cases submissions made by the Appellant in as much as the of Gujarat State Hon'ble Tribunal, in the said case has held that the term Fertilizers and 'input services' is a relative term and there should be Chemicals Ltd Vs. some nexus between the services utilized and the CCE., CUS. & S.T. activities of manufacture of final products. In this Surat-II [2016 regard, it is the case of the Appellant that the service of (41) STR 794 non-compete is directly in relation to the manufacture of (Guj) and pistons.
Stanadyne It is further submitted that in the aforesaid case, Cenvat Amalgamations Credit was denied on the grounds that the service of Pvt. Ltd v. maintaining the garden cannot be said to be in relation Commissioner of to the manufacture of pumps. However, in the Central Excise, subsequent case of Hubergroup India Private Chennai [2011 Limited v. C.C.E. & S.T.-Daman, 2022 (4) TMI 421 28 E/41491/2016 (22) STR 344 - CESTAT Ahmedabad, after placing reliance on the (Tri.-Chennai)] case of the jurisdictional High Court in Commissioner of Central Excise and Service Tax v. M/s. Rane TRW Steering Systems Limited, 2015 (4) TMI 704
- Madras High Court, the Hon'ble Tribunal held that the appellants therein are entitled for the cenvat credit in respect of maintenance of gardens.
Without prejudice, it is submitted that the decision of Stanadyne Amalgamations is by a Single Member of the Hon'ble CESTAT, therefore, it is not binding in the instant case. In light of the same, it is submitted that the Cenvat Credit availed by the Appellant is eligible and cannot be denied on this ground.
5. It was submitted It is submitted that as stated supra, the service of non-
that incidental or compete is an activity which is intrinsically linked to the ancillary activities to manufacture of pistons by the Appellant, which is part the main objects of and parcel of their business activity and is therefore not the manufacturer an activity which is incidental or ancillary to the could not be business of the Appellant. Therefore, the service falls considered as within the "means clause" of the definition of input related to the service and Cenvat Credit is eligible to the Appellant. manufactured Furthermore, the reliance placed by the Department on product and hence, the case of Manikgarh Cement is misplaced in as credit on this count much as the said case pertained to the availment of could not be Credit on services of repairs, maintenance and civil granted. Reliance construction for the establishment of a residential was placed on colony for the benefit of the employees. Under such Commissioner v. circumstances, the Hon'ble Court held that the said Manikgarh Cement activity qualifies as a welfare activity for the benefit of [2010 (20) STR the employees and has no nexus with the business of 456] and the case the assesse. In light of the same, Credit availed was of Maruti Suzuki denied. Therefore, the facts of the aforesaid case are Ltd Vs differentiable and are not applicable to the instant case. Commissioner In any case, it is submitted that the said decision was [2009 (240) ELT distinguished in the case of Reliance Industries 641 (SC)]. Limited v. Commissioner of Central Excise and Service Tax (LTU) Mumbai, 2022 (380) E.L.T. 457 (Tri. - LB) by placing reliance on the cases of Ultratech and Coca Cola India Pvt. Ltd. v.
Commissioner of Central Excise, Pune-III [2009 (15) S.T.R. 657 (Bom.). Further, in the case of M/s. Manikgarh Cement v. Commissioner of Central Excise and Customs, Nagpur, 2023 (8) TMI 1046 - CESTAT Mumbai, credit was allowed by placing reliance on the aforesaid decisions.
It is further submitted that the Department has placed reliance on the case of Maruti Suzuki to submit that it has to be established that inputs mentioned in the inclusive part are "used in or in relation to the manufacture of final product". In this regard, at the outset, it is submitted that the said finding was rendered in the context of the definition of "inputs" under Rule 2(g) of the CCR, 2004 and not "input services" under Rule 2(l) of the CCR, 2004. Without prejudice, it is submitted that the said finding is not contrary to the submissions made by the Appellant supra, in fact, the case of Maruti Suzuki aids the submissions of the Appellant in as much as it is squarely 29 E/41491/2016 the case of the Appellant that service of non-compete is directly used in or in relation to the manufacturing activity of the Appellant. Furthermore, the Appellant does not contest the fact that the "means clause" and the "inclusive clause" of the definition of the input service should be read together and not in isolation. In light of the same, the Cenvat Credit availed by the Appellant cannot be denied by placing reliance on the aforesaid decisions.
21. Finally, the Learned Advocate prayed that the Appeal be allowed in full, and the Impugned Order be set aside with consequential relief.
22. We have carefully considered rival submissions and examined the evidences available on Appeal records including the case laws relied upon.
23. The issues before us for consideration in this appeal are: -
i. Whether the Mutual Obligation Fee has been paid by the appellant for any service rendered and if so, whether such service will qualify as input service within the "means clause" under Rule 2(l) of CCR, 2004.
ii. Whether the performance of any mutual obligation, if a service, when provided by IPL, will be covered under the "includes" clause under Rule 2(l) of CCR, 2004 as "sales promotion".30
E/41491/2016
24. "Mutual obligation fee" as the phrase denotes is a fee for obligations to be performed mutually. As the term obligation relates to a performance of a duty cast upon a person, mutual obligation is merely duty that both parties perform for one another. Obligation has a legal, social or moral tinge depending on the commitment or promise involved and is the duty involved in fulfilling such commitment or promise, whereas service on the other hand is purely a contractual engagement for a work in return for monetary or other consideration. Thus, when the appellant as well as IPL have divided amongst themselves the products and areas to which they will confine themselves to, it is more of a fulfilment of a duty to honor the same rather than performance of any service inter-se the parties. Thus, while the question whether the 'mutual obligation fee' itself denotes any service is moot, nevertheless, inasmuch as Revenue is not in appeal against the finding of the Adjudicating Authority that it is a service, we too proceed on the said basis.
25. In this context, we find it apt to reproduce the definition of "input services" in terms of CENVAT Credit Rules, 2004, which reads as under: -
(l) "input service" means any service, -31
E/41491/2016
(i) used by a provider of output service for providing an output service; or
(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, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes.........
[Explanation. - For the purpose of this clause, sales promotion includes services by way of sale of dutiable goods on commission basis.]
26. The appellant is a manufacturer and not a service provider. Therefore, the first issue to be decided is whether the services for which Mutual Obligation Fee has been paid by the appellant have been used by the appellant, 32 E/41491/2016 whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal.
27. We find that the payment made to IPL by the appellant is not for manufacture of final products or in relation to manufacture of final products but for mutually agreeing to obligations stated in Schedule 3 to the Share Purchase Agreement. In this case, we find the principal agreement is the Share Purchase Agreement dated 24.12.2013 amongst all the parties stated therein, Clause 9 of the Agreement titled 'Non-Solicitation' at sub-Clause 9.1 causing an obligation on the relevant parties to execute a non-solicitation agreement simultaneously with the execution of the main agreement on the execution date. Clause 8.5 of the Share Purchase Agreement titled 'Additional Obligations and Covenants' that stipulates the parties have further agreed to comply with the obligations and covenants listed in Schedule 3 of this Agreement. In Schedule 3 of the Agreement, we find that the appellant and IPL have, after identifying products to be manufactured and areas of operation by each, made mutual obligations with respect to the manufacture of products, the customers for whom they are manufactured, as well as assets necessary for the same. It is in furtherance of the obligations to be complied with 33 E/41491/2016 under this Schedule, which are termed as mutual obligations, that IPL has made the said payments.
28. The debit note / bill No. 34655 dated 31.12.2013 raised by IPL on the appellant describes the service / purpose for which the payment has been sought by IPL from the appellant as "Mutual Obligation Services Fee". Therefore, the services for which Mutual Obligation Fee has been paid by the appellant do not qualify as input service within the "means clause" under Rule 2(l) of CCR, 2004, since from the nature of duties performed mutually, they cannot be said to be used by the appellant directly or indirectly in or in relation to manufacture of final products.
29. The appellant's reliance on the judgment of Union Carbide India v. CCE, Calcutta-I, 1996 (86) E.L.T. 613 (Tribunal) to submit that the definition of input service is wide and the service need not be utilised directly in the manufacture of the final product for it to be considered under the "means clause" is misplaced as the said case law relates to definition of "inputs" and not "input services". The appellant themselves have argued elsewhere in this appeal that it is settled law that a case is an authority for what it does and not what logically flows from it. The same argument is squarely applicable here.
34
E/41491/2016
30. Coming to the second issue, we find that the appellant has placed reliance on Oxford Dictionary of Business in support of the argument that the service received by them constitutes "Sales Promotion" and in their written submission dated 01.04.2025 in Para 15, they have said that "the 'sales promotion' has been defined in the Oxford Dictionary of Business to mean an activity designed to boost the sales of a product or service". However, they have produced Webster's Third New International Dictionary at page 50 of their paper book of Rules and Citations filed on 01.04.2025, the 'sales promotion' as defined in the Webster's Third New International Dictionary is as follows: -
"Sales promotion : activities and devices designed to create goodwill and sell a product; esp.: selling activities (as use of displays, sampling, demonstrations, fashion shows, contests, coupons, premiums, and special sales) that supplement advertising and personal selling, coordinate then, and make them effective"
31. We find that none of the activities mentioned in aforesaid dictionary definition; or even activities that are normally associated with sales promotion, such as advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, telephone selling, personal letters etc., stimulation of 35 E/41491/2016 sales achieved through contests, demonstrations, discounts, exhibitions or trade shows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities, use of incentives which are employed to get people to buy a product, or drive sales, etc., are rendered by IPL to the appellant for the said payment of 'mutual obligation fee'.
32. We find that merely because the appellant has paid service tax on the said activity as is leviable under the Finance Act, 1994 provisions, or because their services fall under Section 66E(e) of the Finance Act, 1994, does not automatically mean that such services are also qualified as input services. While the services performed may be subject to levy of service tax, not all services qualify as input services, and it is only those that fall within the ambit of the definition that can be considered to be input services. Therefore, merely the factum of a service having suffered service tax does not necessarily translate the service becoming an input service.
33. At this juncture, we find it appropriate to notice the finding of the Adjudicating Authority which is reproduced as under: -
"41. From the above, it is clear that sales promotion is defined as an activity that gives incentives to get people to 36 E/41491/2016 buy a product; as a medium to stimulate quicker purchase of particular products; as the ways used by firms to communicate with intended target market; as an activity designed to boost the sales of a product or service. Here it is elaborated as an activity to boost sales of products/services and intended to reach the targeted class/segment (potential customers). But in respect of the services received by the assessee, in this case, I find that the "Mutual Obligation Fee" is paid by the assessee to its competitor to create an obligation on the part of the competitor and the competitor is obliged not to compete with the assessee in the areas agreed upon mutually. In this case, I find that M/s India Pistons Ltd. had obliged to not to solicit, quote or supply pistons to M/s Mahindra and Mahindra and M/s Tata Motors i.e. in other terms M/s India Pistons Ltd. had obliged to not to compete with the assessee for supply of pistons or auto components to the said two customers. Similarly, M/s India Pistons Ltd. have also agreed to not to solicit, quote or supply of pistons to multinational customers for a period of three years from the date of termination of their joint venture agreement.
42. I also find that these obligations have been created on M/s India Pistons Ltd. by an agreement and the obligations are intended to protect the investments made by the assessee and their capital and technical know-how. I find that these obligations created on M/s India Pistons Ltd., are intended to protect the existing volume of sales of pistons/auto components manufactured by the assessee, with the customers discussed above. Here I find that it has to be critically examined the obligations created for protecting the existing market/sales could be equated as sales promotion. From the definition given in the dictionaries explained above, it could be seen that the activities intended to reach the intended target customers for enlarging/increasing the volume of sales alone could be termed as sales promotion activities. Hence by comparing 37 E/41491/2016 the definition for the word 'sales promotion' with the obligations created on the competitor, it could be arrived that the steps taken by the assessee to protect their investment/volume of sales to their existing customers could not be termed as activities intended for 'sales promotion'. It should also be noted that the services of mutual obligation has been received from M/s India Pistons Ltd. who is a competitor to the assessee in the field of manufacture of pistons for automobiles. Hence the services received from the competitor could never be termed as sales promotion intended for increasing sales to the assessee's products. The restraint created on the competitor through mutual obligation agreement could not be termed as a step in the direction of sales promotion and it is a step intended to just retain their present market share/sales volume with the existing customers. Hence I conclude that the assessee's contention that the services received by them from M/s India Pistons Ltd. are nothing but 'sales promotion' is not acceptable. Probably, the assessee is stretching the meaning of 'sales promotion', so as to obtain Cenvat credit [available on 'input service'], of the service tax paid on the 'Mutual Obligation Fee'. Within the scope of the definition of 'input service' appearing in the Cenvat Credit Rules, services by way of non-compete agreement does not appear to be covered. A non-compete agreement is generally intended to protect the existing market/territory, and the same has nothing to do with the actual manufacture of the final product, in this case, pistons."
34. The appellant has argued that in case the service tax paid is erroneous, the judgment of Bajaj Allianz General Insurance Co. Limited v. Commissioner of Central Excise, Pune-III, 2015 (37) S.T.R. 316 (Tri. - Mumbai) is applicable 38 E/41491/2016 and the appellant should be permitted to treat the Cenvat Credit availed by them as refund of tax erroneously paid. In this regard, we find that the issue that arises for our consideration is only on the entitlement of the appellant to take credit of the service tax paid on the mutual obligation fee and we are called upon only to decide the same. The taxability or otherwise of the service tax paid at the service providers' end does not arise for our consideration.
35. Before concluding, it may not be out of place to point out that the appellant's reliance on the case of CIT v. Ingersoll Rand International 2014 (6) TMI 934-Karnataka High Court to contend that the service received by the Appellant from IPL is a service relating to "sales promotion"
is also misplaced for the reasons that the said decision is in respect of order passed by Income Tax Appellate Tribunal in the context of Income Tax Act, 1961 and the said decision does not even attempt to interpret the term "Sales Promotion".
36. The other case laws relied upon by both the parties are clearly distinguishable in the facts and circumstances of those cases. In fact, it is not the definition of input services as given in Rule 2(l) of the CENVAT Credit 39 E/41491/2016 Rules, 2004 for the relevant period that has arisen for consideration in some of these relied upon cases.
37. We further observe that the fact still remains that typically, organizations classify nearly all outlays as pertaining to their commercial pursuits, with the possible exception of donations to philanthropic endeavors. Yet, the definition of input services as in the statute, refrains from embracing such an expansive interpretation that would deem every procured service as eligible. Had the objective been to incorporate them comprehensively, the legislature would have simplified the definition to merely cover "all services"
remunerated by the assessee. Additionally, the expression "input services" is inherently relational, necessitating at least a modicum of linkage between the services employed and the fabrication of the ultimate goods. Here, such a correlation is utterly absent, far from even a tenuous one. In fact, the input service definition as existing for the relevant period requires an integral connection that should come out between the services rendered and the activity of manufacture of the appellant. We observe that attempt of the appellant to bringing the said 'mutual obligation' performed under the nomenclature 'sales-promotion', is doomed to fail, as that would not change the very basic nature of these obligations as is discernable from the 40 E/41491/2016 agreement. In the impugned case, the Agreement nomenclatured as a Share Purchase Agreement contains these obligations in the Schedule 3 and giving such obligations, a colour of Sales-Promotion, as contended by the Appellants, would be too far-fetched.
38. We find that SPA does not contain any identifiable service that would indicate that what is being provided is a service of sales promotion. In fact, it is also pertinent that IPL is a manufacturer and is not a registered provider of services of sales promotion.
39. We agree with the contention of the Ld. Authorized Representative that sales promotion is an overt activity that involves i) goods/ services, ii) a physical activity that stimulates demand, iii) a specific target market at which the said campaign/activity is directed, iv) an incentive or inducement to target consumers, etc.
40. This shows that 'sales promotion' is a positive connotation in that it is a mechanism of enhancing the sales. Just because of no-compete provisions, or mutual engagement in the activities of each other by IPL and the appellant, by demarcating the respective spaces, does not make the activities that of sales promotion. Such activities 41 E/41491/2016 may no doubt result in securing the bottom line of the Company, however, such false equivalence of turf protecting activities intended to salvage and protect the respective territories cannot be equated to the 'sales promotion' stated in the inclusive portion of the definition in Rule 2(l) of the CENVAT Credit Rules, 2004. We find that the mutual obligation fee paid by IPL to MIPL is for activities in the nature of investment, or protection of investments in technical knowhow, no-compete arrangement for protecting marked territories, and do not fall under the definition of 'sales promotion' even in the definitions extracted by the appellant in the Ground of Appeal, from various marketing management books or dictionaries, as below: -
a. The definition extracted from Philip Kotler's Book: Marketing Management uses the words/terms - campaigns, incentive tools, short- term, stimulate. It is submitted that the purpose for which Mutual Obligation Fee has been paid as per Schedule 3 to Share Purchase Agreement does not involve any activity pertaining to any of the abovementioned terms.
b. The definition extracted from Achumba Iheanyi's Book: Sales Management Concepts uses the words/terms- 'marketing activities' and 'stimulate consumer purchasing', 'displays/ shows/ demonstrations/ expositions/ etc'. We find that the purpose for which Mutual Obligation Fee is entirely different, one of no-compete arrangement, it does not involve an 42 E/41491/2016 activity pertaining to any of the abovementioned terms as per Schedule 3 to Share Purchase Agreement.
c. The definition extracted from George Jennifer's Book.
Contemporary Management uses the words/terms - 'direct inducement', 'incentive', 'sales-force/ distributors/ ultimate consumers', 'immediate sale'. We do not find that Mutual Obligation Fee has been paid for any of the aforesaid activities as per Schedule 3 to Share Purchase Agreement. d. The definition extracted from Adrian Palmer's Book:
Introduction to Marketing Theory and Practice uses the words/terms - "communicate' and 'incentive for action'. As per Schedule 3 to Share Purchase Agreement, Mutual Obligation Fee is not for any communication of incentive for action by any consumer. It is for an entirely different purpose, i.e., one of no-compete arrangement and involving transfer of shares/control/ technical knowhow/ marketing territories.
e. The definition extracted from Bagavathi Pillai's Book: Modern Marketing uses the words/terms 'stimulate interest', 'trial or purchase'. We find that no such mention is available in Schedule- 3 of the SPA for which Mutual Obligation Fee has been paid. The purpose of payment of Mutual Obligation Fee is entirely distinct and different, as already stated above.
41. We are therefore of the view that the appellant has failed to make out a case that the mutual obligation fee paid warrants treatment as input services either in the means clause or as "Sales Promotion" in the inclusive part of 43 E/41491/2016 the definition of input services as per Rule 2(l) of the CENVAT Credit Rules, 2004.
42. From the above discussion, we find no reason to interfere with the well-reasoned order of the Adjudicating Authority.
43. Thus, we reject the appeal and uphold the Order-in-Original No. 03/2016(CE) dated 19.02.2016 passed by the Commissioner of Central Excise, Chennai (Order pronounced in open court on 24.09.2025) Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO) MEMBER (JUDICIAL) MEMBER (TECHNICAL) MK