2025-VIL-1579-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Cenvat Credit, Non-compete agreement, Sales Promotion or not, Payment of Mutual Obligation Fee towards Non-Compete Obligation – Appellant entered into a Share Purchase Agreement (SPA) with M/s India Pistons Ltd. (IPL) under which the appellant paid "Mutual Obligation Fee" to IPL towards obligations undertaken by IPL to not compete with the appellant in certain product lines and territories. The appellant availed Cenvat credit of the service tax paid on this fee - Whether the Mutual Obligation Fee paid by the appellant qualifies as an "input service" under the "means clause" of Rule 2(l) of the Cenvat Credit Rules, 2004 - HELD - 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 - Merely because the appellant has paid service tax on the said activity as is leviable under the Finance Act, 1994 or because the services fall under Section 66E(e) of the Finance Act, 1994, does not automatically mean that such services are also qualify 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 - The Mutual Obligation Fee paid by the appellant was not for any service directly or indirectly used in or in relation to the manufacture of final products. The obligations created under the SPA were for protecting the appellant's existing market share and investments, and not for boosting sales. Therefore, the services for which the fee was paid do not qualify as "input service" under the "means clause" – The appellant is not entitled to take credit of the service tax paid on the mutual obligation fee - the order of the Commissioner denying the Cenvat credit is upheld – The appeal is dismissed - Whether the services provided by IPL in terms of the non-compete obligation can be considered as "sales promotion" under the "includes clause" of Rule 2(l) of the CCR, 2004 – HELD - The activities undertaken by IPL under the non-compete obligation do not fall under the definition of "sales promotion". "Sales promotion" involves overt activities to stimulate demand and boost sales, which are absent in the present case. The non-compete arrangement was intended to protect the appellant's existing market share and investments, and not to promote sales - 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 the definition of input services as per Rule 2(l) of the CENVAT Credit Rules, 2004.
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