Cplrpy-2nd Show Cause

To Commissioner of Central Excise Kolkata – II Commissionerate Customs House 15/1, Strand Road Kolkata - 700 001

July 31, 2006

Dear Sir, Re : Notice to Show Cause dated 04.05.2006 bearing Sl.No.V.Ch.39(15) 26/CE/Kol.II/2006 1.

In reply to the aforesaid notice, we have to state and submit as under.

2.

We respectfully submit that the said notice has been issued without

fully and properly appreciating the relevant facts and provisions of law. In the said notice a number of issues have been clubbed together and relevant facts as well as our submissions on each of the said issues are mentioned hereinbelow. 3.

Issue No.1 :

Demand

of

interest

on

escalation

amounts

(Annexure–I to SCN) 3.1

In all these cases, after clearance of the goods, our claims for escalation were accepted by the buyers and upon such acceptance, our supplementary bills were raised for the escalation amounts and in the same month in which such supplementary bills were raised, the differential duties were also paid. These payments of duties have been admitted in the Show Cause Notice itself.

3.2

Prior to acceptance of our claims by the buyers, we did not and could not have any liability to pay the duties.

Our right to receive the

2 escalation amounts accrued only when our claims were accepted by the buyers and simultaneously we raised the bills and paid the duties. A mere claim cannot confer any right nor a debt accrues by reason of a mere claim.

The escalation amounts were the results of long

negotiations and ultimate acceptance of our claims and these events took place after the clearance of the goods from the factory. We submit that on such escalation amounts, our liability to interest could arise only if there was any delay in payment of duty after the escalation was finally accepted. However, there was no such delay. Simultaneously, with acceptance of the escalation claims, the bills were raised and duties on the escalation amounts were paid in the same months in which the bills for such escalation amounts were raised. 3.3

We have further to state that under Section 11A read with Section 11AB of The Central Excise Act, 1944 (In short the 1944 Act), interest was payable from the first date of the month succeeding the month in which the duty ought to have been paid. In the present case, differential duty became payable only as a result of and upon acceptance of our escalation claims by the buyers and in the same month in which the escalation bills were raised, the differential duty was also paid. Thus, even in terms of the specific statutory provisions, no interest was payable on the escalation amounts.

4.

Issue No. 2 : Cenvat Credit of Rs. 4,96, 746/- of the duties paid

by the job workers (Annexure–II to SCN)

3 4.1

In these cases old printing cylinders were sent to the job-workers for re-engraving and re-etching. On the said re-engraved and re-etched cylinders, Central Excise duties were paid by the job workers and collected by their jurisdictional Central Excise Authorities on the basis that the said activities of re-engraving and re-etching amounted to manufacture. These re-engraved and re-etched cylinders were received at our factory under cover of Statutory Central Excise Invoices of the job workers evidencing payment of duties thereon and we availed Cenvat Credit of the duties actually paid by the job workers.

This

factual position has been admitted in the Show Cause Notice itself. Paragraph 2 (internal Page 2 of SCN) admits that we availed the said Cenvat Credits on the strength of the invoices issued by the job workers. 4.2

In the Notice it has been alleged that availment of Cenvat Credit on the said re-engraved and re-etched cylinders amounted to availing Cenvat Credit twice on the same capital goods. We submit that the said allegation is totally misconceived and incorrect. When the cylinders were originally received from their respective manufactures, the said manufacturers paid the duties and we availed Cenvat Credit of the duties so paid. The cylinders were thereafter used at our factory and ultimately the same outlived their utility due to wear and tear and became incapable of any further use.

These used and discarded

cylinders were then sent to the job workers for re-engraving and reetching. On the re-engraved and re-etched cylinders, the job workers

4 paid the duties and these duties were availed as Cenvat Credits when we received the said re-engraved and re-etched cylinders at our factory under cover of proper duty paying documents. These reengraved and re-etched cylinders were treated as new goods by the Central Excise Authorities having jurisdiction over the factories of the job workers and on that basis duties were levied and collected. Obviously there is absolutely no scope to allege that we took Cenvat Credits twice on the same capital goods. 4.3

We deny and dispute that availment of the said credits contravened any of the provisions of the Cenvat Credit Rules (In short the Cenvat Rules) or any of the provisions of the 1944 Act or that the said credits were irregular as or for any reason alleged or at all. On the said goods sent to the job workers under cover of our job work challans, the Central Excise authorities having jurisdiction over the job workers factories actually levied and collected Central Excise duties and Cenvat Credits of such duties were lawfully allowable to us.

4.4

The issue as regards allowability of Cenvat Credit in such cases is already covered in our favour by several decisions of the Hon’ble CESTAT. Some such decisions are the following: (a)

2003 (162) ELT 990 (Doiwala Sugar Co. Ltd. Vs. CCE) Cenvat/Modvat - Capital goods got repaired in premises of job worker cleared to appellant on payment of appropriate duty under invoice issued under Rule 52A of erstwhile Central Excise Rules, 1944 by job worker - Appellant eligible to Modvat credit on capital goods received under valid document and used in manufacture of final product - Rule 57Q ibid.

5 (b) 2004 (167) ELT 45 (CCE Vs. U.P. State Sugar Corporation Ltd) Cenvat/Modvat - Rotor assembly, capital goods, sent for repairs to job workers - Machine repaired by using fresh inputs and cleared under invoice issued under Rule 52A of erstwhile Central Excise Rules, 1944 on payment of excise duty - Assessee eligible to take credit on entire invoice value comprising price of machine and job work charges - Rule 57Q ibid. (c)

2000 (117) ELT 756 (CCE Vs. Dinesh Pharmaceuticals) Reference to High Court - Modvat - When job worker pays the duty the procedure for availing Modvat credit in respect of duty paid goods can be followed by the manufacturer of the final product and that the job worker cannot be forced to avail of the benefit of Notification No. 214/86-C.E. and choice is with him in regard to the availment of the benefit or not - Precedent decision of the Tribunal reported in 1991 (54) E.L.T. 347 followed by a High Court on the same issue gave similar finding - Hence, question of making reference again to the High Court will not arise - Section 35G of Central Excise Act, 1944 - Rule 57F of Central Excise Rules, 1944.

We submit that thus the Cenvat Credits on the said re-engraved and re-etched cylinders availed by us on the basis of the actual duty paying documents were and are fully in accordance with law.

Issue No. 3 : Duty of Rs.33,846/- and Education Cess of Rs.677/- on Debit Notes relating to cost of cylinders (Sr. No. 1 of Annexure–III to SCN) 5.1

In respect of these Debit Notes, in the Show Cause Notice, it has been alleged that the C.Ex duty had not been discharged / paid for collection of cost of cylinder in connection with sale of goods.

We

submit that the entire allegations in the Notice on the said issue are totally misconceived.

6 5.2

Printing cylinders are our capital goods and these are used for printing

our

final

products.

designs/writings/printings,

we

For

procure

different different

types

of

cylinders.

The

cylinder cost is incurred by us in expectation of receiving orders from our buyers for sufficient quantity of our final products so that the cylinders are properly utilized upto their expected life. Sometimes the orders ultimately placed by the buyers are for much lower quantities and this results in under-utilisation of the cylinders. Sometimes the orders already placed by the buyers are also cancelled after buying part quantities and this also results in under-utilisation of the cylinders. In the aforesaid types of cases, for the loss suffered by us on account of under-utilisation of cylinders, we raise debit notes on the buyers. 5.3

We submit that by no stretch of imagination the said Debit Notes can be treated as “additional consideration towards cost of cylinders”. Cost of cylinders was our purchase price paid to the supplier of the cylinders. This was an outgoing from our pocket. On the other hand, the Debit Notes were raised on our buyers for not placing sufficient orders due to which the cylinders remained under-utilised. The Debit Notes were for the amounts receivable by us and this had no impact whatsoever on the price of the cylinders. We submit that on the said Debit Notes we had no liability whatsoever to pay any duty and the demand sought to be raised in the Notice is wholly illegal and invalid.

7 5.4

We submit that the charges realized by us for under-utilisation of cylinders due to short-fall in the quantum of purchase orders were in the nature of liquidated damages for short purchase of our final products by the buyers concerned and such liquidated damages were not at all liable to any duty.

5.5

We deny and dispute that on the said Debit Notes any duty was or could be payable or that any Cenvat Credit was reversible as or for any reason alleged or at all.

5.6

Without prejudice to our argument above, we have to further state that with respect to debit note no. DN/15/05-06 dated 26th July, 2005 raised on Halmira Estate Tea Pvt. Ltd. for the value of Rs. 23, 150/on account of re-engraving charges, C.Ex. duty amounting to Rs. 3,704/- and Education Cess amounting to Rs. 74/- has already been paid. A copy of the debit note marked as Annexure A is enclosed herewith for your reference.

5.7

Without prejudice to our argument above that we are not required to pay excise duty in relation to debit notes raised for underutilization of cylinders, we have further to state that all of the debit notes except the one state in para 5.6, were raised in relation to Export to Nepal on Nepal Lever Ltd. Excise duty paid on export to Nepal is refundable to our buyer and as such is a revenue neutral situation and hence no excise duty can be demanded in respect of such debit notes raised on Nepal Lever Limited.

8 6.

Issue No. 4 :

C.Ex Duty of Rs.15,907/- and Education Cess of

Rs./- on Debit Notes under the head delivery charges ( Sr. no. 3 Annexure–III to SCN) 6.1

It has been alleged in the show cause notice that C.Ex duty has not been discharged on delivery charge collected in connection with sale of goods.

6.2

In this connection we do hereby submit that debit note no. DN – SFCS/01 dated 1st August 2005 amounting to Rs. 20,000/- has been issued upon Super Fast Cargo Service on account of excess payment made to them as would be evident from the narration of debit note itself. Super Fast Cargo Service is not even our customer and we have not sold any goods to them. They are our transporters. Hence the question of payment of C.Ex. Duty does not arise.

6.3

We further state that cost of transportation is to be excluded from the assessable value in terms of rule 5 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and as such delivery charges are not includible in the assessable value and the question of payment of excise duty does not arise.

6.4

Without prejudice to our argument above, we have further to state that all of the debit notes except the one state in para 6.2 and DN no. DN/Raj/01/05-06 dated

21st August,

2005 amounting to Rs.

15,270/- and DN/Raj/02/05-06 dated 31st August 2005 amounting to Rs. 13,959/-, were raised in relation to Export to Nepal on Nepal Lever Ltd. Excise duty paid on export to Nepal is refundable to our buyer

9 and as such is a revenue neutral situation and hence no excise duty can be demanded in respect of such debit notes raised on Nepal Lever Limited. 7.

Issue No. 5 : C.Ex duty of Rs.82,630/- and Education Cess of Rs. 1,653/- on Debit Notes raised under the head of purchase rebate (Rejection) ( Sr. No. 4 of Annexure–III to SCN)

7.1

It has been alleged in the show cause notice that C.Ex duty has

not been discharged /paid for collection of amount of money under the head of purchase rebate (rejection) in connection with sale of the goods. 7.2

We submit in this connection that none of these debit notes are in

connection with sale of goods as they have been raised on our suppliers for discount given by them for inferior supply of material. Grant of discounts to us by the suppliers can never be treated as any consideration in connection with sale of goods and hence there is no question of payment of duty as erroneously and incorrectly sought to be alleged in the show cause notice. 7.3 without prejudice to our arguments above, we further state that with respect to debit note no. S.R. Entp. Dated 26th May, 2005 amounting to Rs. 47,593/- raised on M/s S.R. Enterprises towards return of rejected goods, cenvat credit amounting to Rs. 7,615/- and education cess amounting to Rs. 152 has already been reversed. A copy of the debit note is annexed herewith marked as Annexure B. 8.

Issue No. 6 :

C.Ex duty of Rs.36,143/- and Education Cess of

Rs.723 on Debit Notes under the head of rate difference ( Sr. no. 5 Annexure–III to SCN)

10 With regard to the said demand sought to be raised in the Show Cause Notice, we submit that, except one debit note no. Aug 01 dated 15th August , 2005 amounting to Rs. 1,23,750/- raised on Aparna Print Pack Pvt . Ltd., all other debit notes have already been considered in demand under sr. no. 4 of Annexure III to SCN relating to purchase rebate (rejections), hence debit notes amounting to Rs. 1,02,136/- has been taken for raising demand both under sr. no. 4 and sr. no. 5 of Annexure III to SCN. With respect to debit note no. Aug 01 dated 15th August , 2005 amounting to Rs. 1,23,750/raised on Aparna Print Pack Pvt . Ltd. stated above, we submit that this debit notes is not in connection with sale of goods as it has been raised on our suppliers for discount given for excess rate charged. Grant of discounts to us by the supplier can never be treated as any consideration in connection with sale of goods and hence there is no question of payment of duty as erroneously and incorrectly sought to be alleged in the show cause notice. 9.

Issue No. 7 :

C. Ex duty of Rs.42,490/- and Education Cess of

Rs.850/- on Debit Notes under the head “External Processing Charges” (Sr. No. 2 of Annexure – III to SCN) With respect to demand raised under the head External Processing charges for collection in connection with sale of goods, we submit that these debit notes were not raised on our customer for sale of goods. These debit notes were raised on Aparna Paper Processing Ind (P) Ltd. for job work done by us on behalf of them. In relation to job work the liability of

11 payment of duty is undertaken by principal manufacturer and the question of payment of duty by us does not arise. 10.

We deny and dispute that we have contravened any of the provisions

of law or that the amounts demanded in the said notice are or can be payable by us. We deny and dispute that there has been any contravention whatsoever on our part of any of the provisions of the Central Excise Rules or the Cenvat Credit Rules or any other provision of law as alleged or at all. We further deny and dispute that various amounts of Central Excise Duty or Cenvat Duty or Education Cess mentioned in Page 13 of the Show Cause Notice are or can be payable by us. We further deny and dispute that any Cenvat Credits as alleged in the said notice are liable to be reversed by us. We further deny and dispute that in the facts and circumstances of the instant case, there is or can be any scope to invoke the provisions of Section 11AC of The Central Excise Act, 1944 or Rule 25 of The Central Excise Rules, 2002 or Rule 13 of The Cenvat Credit Rules, 2002 or Rule 15 of The Cenvat Credit Rules, 2004 or to levy any penalty upon us under any of the said provisions. We have not done any of the acts or things mentioned in the said provisions and none of the conditions precedent for their applicability exists or is satisfied. We further deny and dispute that in the facts and circumstances of the instant case, any interest under Section 11AB can be demanded from us. 11.

We hope we have clarified the entire position to your honour. We

respectfully request you to kindly withdraw/cancel the aforesaid notice and to drop the proceedings sought to be initiated thereby.

12 12.

If, however, inspite of the aforesaid, you intend to continue any

further with the said notice, we desire that an opportunity of personal hearing may kindly be granted to us before passing any final order in the matter. 13.

This is strictly without prejudice to any of our rights and contentions.

Thanking you, Yours faithfully,

For Creative Polypack Ltd.

Authorised Signatory