To July 31, 2006

Commissioner of Central Excise

Kolkata – II Commissionerate
Customs House
15/1, Strand Road
Kolkata - 700 001

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 re-

etching. 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 re-

engraved 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. For different types of

designs/writings/printings, we procure different 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