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TaxTMI 
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2025 (9) TMI 1464
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....ldings 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 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 ....
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....y 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,....
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....posed 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 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 promo....
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.... 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. 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 ....
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....tions 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: - "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....
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....omotion" 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 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 ca....
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....ase, 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: - "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, orga....
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....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......" ii. Stanadyne Amalgamations Pvt. Ltd V....
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....ame. 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.)]. 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....
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....ts provided that they are integrally connected with the business of the Appellant." Thus, any activity which is used in the business of 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 that there was no specific clause in the SPA to indicate promotion of business, thus, classification of the service could not be done. As a consequence, Cenvat Credit could not be availed. Reliance in this regard was placed on Williamson Magar & Co v. Commissioner of Service Tax, Kolkata [2024 (3) TMI 404-CESTAT Kolkata]. At the outset, it is submitted that it is a settled law that the misclassification of serv....
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....s settled law that Cenvat Credit cannot be denied on the ground that the service provider was not liable to pay service tax on the same. Reliance in this regard is placed on the case of Commissioner of Central Excise, Pune v. Ajinkya Enterprises, 2013 (294) E.L.T. 203 (Bom.). Without prejudice, it is submitted that if the service of non-compete is not taxable, the Cenvat Credit availed by the Appellant shall be treated as refund of tax erroneously paid to the Government and shall not be recovered. Reliance in this regard is placed on the case of Bajaj Allianz General Insurance Co. Limited v. Commissioner of Central Excise, Pune-III, 2015 (37) S.T.R. 316 (Tri. - Mumbai), wherein, under similar facts, the Hon'ble Tribunal, in the context of insurance auxiliary service held as follows: "From the above discussion, it is very much clear that the insurance auxiliary services provided by the agents in the State of Jammu & Kashmir are not taxable. Therefore, the appellants are not liable to pay Service Tax for the said services of the insurance agents. In these terms, whatever credit is taken by the appellant is nothing but the refund of tax erroneously paid by them. .... With ....
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....e in relation to the manufacture of pumps. However, in the subsequent case of Hubergroup India Private Limited v. C.C.E. & S.T.-Daman, 2022 (4) TMI 421 - CESTAT Ahmedabad, after placing reliance on the 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 that incidental or ancillary activities to the main objects of the manufacturer could not be considered as related to the manufactured product and hence, credit on this count could not be granted. Reliance was placed on Commissioner v. Manikgarh Cement [2010 (20) STR 456] and the case of Maruti Suzuki Ltd Vs Commissioner [2009 (240) ELT 641 (SC)]. It is subm....
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.... 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". 24. "Mutual obligation ....
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.... Mutual Obligation Fee has been paid by the appellant have been used by the appellant, 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 o....
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...., 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 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....
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....e 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 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 re....
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....s. 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 wou....
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.... 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 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 co....