C.No. Dated .

2014
SHOW CAUSE NOTICE NO. / 2014 Dated .2014
Sub:Central Excise M/s. Rialto Enterprises Pvt. Ltd.
S.No.100/1,Vendallur Kellambakkam Road, Chennai-48,
Availment of Service tax credit of Rs. /- on ineligible
/unrelated input services Regarding.
****
M/s. Rialto Enterprises Pvt. Ltd. S.No.100/1,Vendallur Kellambakkam
Road, Chennai-48(Here in after referred to as REPL), having Central Excise
Registration Certifcate No. AAACR3589EXM004, engaged in the manufacture
of Tooth brush falling under 9603 2100 of CETA of 1985. They are availing
Cenvat Credit on Service Tax paid on various Inputs, Input Services and
Capital Goods used in the manufacturing of their fnal products. REPL clear
the Tooth brushes on payment of duty for home consumption and clear the
same for export without payment of duty under Letters of Undertaking as well.
2. During the audit of accounts of the REPL by the Internal Audit Group,
Chennai III Commissionerate, it was noticed that they have availed Cenvat
Credit of Service Tax paid on various services as furnished below:
Sl.No.DESCRIPTION OF SERVICES Period involved Service tax
credit Availed
1 Pest Management Services July 2009 to
June 2014
111045
2 Housekeeping Services -do- 1335885
TOTAL 1446930
3. As per Rule 3 (1) of Cenvat Credit Rules, 2004 every manufacturer is
entitled to avail cenvat credit on any input or input service, as the case may be
used in the manufacture of intermediate products, by a job worker availing
beneft of the exemption specifed in the Notifcation No.214/86 CX (NT) dated
25.3.1986 and received by the manufacturer for use in or in relation to
manufacture of fnal product.
4. As per the defnition of input service under Rule 2(l) of the CCR, 2004,
"input service" means any service:-
(i) used by a provider of taxable service for providing an output
service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in
relation to the manufacture of fnal products and clearance of fnal
products upto the place of removal,
and includes services used in relation to setting up, modernization,
renovation or repairs of a factory, premises of provider of output
service or an ofce relating to such factory or premises,
advertisement or sales promotion, market research, storage upto the
place of removal, procurement of inputs, activities relating to
business, such as accounting, auditing, fnancing, recruitment and
quality control, coaching and training, computer networking, credit
rating, share registry, and security, inward transportation of inputs
or capital goods and outward transportation upto the place of
removal;
5. Whereas. REPL have availed the credit of Service Tax paid on the aforesaid
services as input services which were not related in or relation to the
manufacturing of the fnished goods, which is not in accordance with Rule 2 (l)
read with Rule 3 (1) of Cenvat Credit Rules, 2004. Therefore It appears that
the incorrect availment of Cenvat credit of Rs. /- is liable for expunction /
recovery in terms of Rule 14 of the Cenvat Credit Rules, 2004 read with proviso
to Section 11A (1) / Section 11A(5) of the Central Excise Act, 1944 with
interest under Section 11AB/11AA of Central Excise Act, 1944.
5. As per Rule 9(6) of Cenvat Credit Rules 2004, a Manufacturer of Final
Products or the provider of the output services shall maintain proper record for
the receipts and consumption of the input services in which relevant
information regarding the value, tax paid, Cenvat Credit taken and utilized, the
person from whom the input service has been procured is recorded and the
burden of proof regarding the admissibility of the cenvat credit shall lie upon
the manufacture or the provider of output service taking such credit. Whereas
REPL have not mentioned in their ER-1 returns or any other documents
furnished to the Department, about the nature of services for the service tax
credit of Rs. /- and they have not furnished any valid reasons to establish
that the services on which credit availed is used in or relation to the
manufacturing of the fnished goods. Accordingly, they have contravened the
provision of Rule 2 (l) read with Rule 3 (1) and Rule 9 (6) of Cenvat Credit
Rules, 2004 and suppressed the nature of impugned services and purpose for
which it was utilized, with a intension to evade payment of duty. Therefore, it
appears that proviso to Section 11A (1) / Section 11A(5) of Central Excise Act,
1944 read with Rule 14 of Cenvat Credit Rules, 2004 invocable in this case.
Also they are liable for penalty under Rule 15 of Cenvat Credit Rules, 2004
read with Section 11 AC of Central Excise Act, 1944.
6. REPL are therefore required to show cause within thirty days from the
receipt of this notice to the Additional Commissioner of Central Excise, 121,
N.H. Road Chennai-III Commissionerate as to why :
(i) an
amount of Rs.1446930/- (S.Tax Rs.1404788: Cess Rs.28093: SHE
Cess Rs.14049/- (Rupees Fourteen Lakhs Forty Six Thousand Nine
Hundred and Thirty only) should not be recovered under Rule 14 of
Cenvat Credit Rules, 2004 read with Section 11A (1) / Section
11A(5) of Central Excise Act, 1944,
(ii) a penalty
should not be imposed on them under Rule 15 of Cenvat Credit
Rules, 2004 readwith Section 11AC and Section 11A(5) of Central
Excise Act, 1944;
(iii) interest
on (i) above should not be demanded under Section 11AB/11AA of
Central Excise Act,1944.
12. REPL are further required to produce, at the time of showing cause, all the
evidences and documents upon which they intend to rely in support of their
defence. They are also required to indicate in their written reply as to whether
they wish to be heard in person before the case is adjudicated failing which it
will be construed that they do not desire to be heard in person.
13. If no cause is shown against the action proposed to be initiated within
thirty days of receipt of this notice or having shown cause, they do not appear
before the adjudicating authority when the case is posted for hearing, the case
will be decided ex-parte based on the evidences available on record.
14. This Show Cause Notice is issued without prejudice to any further action
or any proceedings, which may be initiated against them under the Central
Excise Act or Rules made there under or any other law in force in India.
ADDITIONAL COMMISSIONER
To
M/s. Rialto Enterprises Pvt. Ltd. S.No.100/1,Vendallur Kellambakkam Road,
Melakottaiyur, Chennai-48.
(By R.P.A.D.)
The Superintendent of Central Excise,
Kellambakkam Range.
C.No. Dated .2014
SHOW CAUSE NOTICE NO. / 2014 Dated .2014
Sub:Central ExciseM/s. Rialto Enterprises Pvt. Ltd.
S.No.100/1,Vendallur Kellambakkam Road, Chennai-48, Non
payment of Service tax on procurement and supply service
Regarding.
****
M/s. Rialto Enterprises Pvt. Ltd. S.No.100/1,Vendallur Kellambakkam
Road, Chennai-48(Here in after referred to as REPL), have entered into a
"Purchase agreement dated 23.06.2011" with M/s Gillete India Ltd., for
manufacture and supply of 26,00,00,000 Manual Tooth Brushes and
2,40,00,000 retail packed brushes for every year. In this connection they have
obtained Central Excise Registration Certifcate No. AAACR3589EXM004, for
manufacture of Tooth brush falling under 9603 2100 of CETA of 1985.
2. During the audit of accounts of the REPL by the Internal Audit Group,
Chennai III Commissionerate, it was noticed that, during the year 2012-13,
they have manufactured and supplied 17,08,80,229 Nos of Tooth Brush to M/s
Gillete India Ltd., and procured 13,02,18,204 Nos of duty paid Tooth Brushes
from M/s Breach Oralcare (P) Ltd., and supplied to M/s. Gillete India Ltd, as
per the Purchase agreement dated 23.06.2011. On verifcation of invoices of
M/s Breach Oralcare (P) Ltd., and corresponding invoices of the REPL, it was
noticed that they have procured and supplied the tooth brushes to M/s Gillete
India Ltd., with a margin / commission as furnished below.
Month Purchases from M/s Breach
Oralcare (P) Ltd.,
Supplies to M/s Gillete
India Ltd
Margin/Co
mmission
Qty Value Qty Value

Apr-12 1,33,28,040.
00
7,48,25,638.5
4
1,33,28,040.
00
7,55,54,706.0
0
7,29,067.46
May-
12
83,34,120.00 5,25,19,664.2
7
83,34,120.00 5,30,49,387.6
0
5,29,723.33
Jun-12 36,23,400.00 2,50,14,548.5
9
36,23,400.00 2,52,70,646.4
0
2,56,097.81
Jul-12 1,46,42,640.
00
8,58,49,441.7
0
1,46,42,640.
00
8,67,12,344.4
0
8,62,902.70
Aug-
12
96,52,320.00 6,13,67,662.4
9
96,52,320.00 6,20,39,786.4
0
6,72,123.91
Sep-12 1,04,77,920.
00
6,58,04,022.9
8
1,04,77,920.
00
6,66,87,642.0
0
8,83,619.02
Oct-12 1,02,36,720.
00
6,23,97,049.6
1
1,02,36,720.
00
6,45,24,741.6
0
21,27,691.9
9
N!-12 1,43,99,520.
00
8,72,46,559.7
8
1,43,99,520.
00
9,04,63,711.8
0
32,17,152.0
2
"ec-12 1,09,57,524.
00
6,67,47,054.0
8
1,09,57,524.
00
6,89,70,599.4
0
22,23,545.3
2
Jan-13 1,38,61,896.
00
8,04,69,651.2
9
1,38,61,896.
00
8,36,30,559.3
6
31,60,908.0
7
#e$-13 1,16,13,600.
00
6,96,98,181.7
9
1,16,13,600.
00
7,25,44,327.6
8
28,46,145.8
9
Mar-13 90,90,504.00 5,38,72,350.4
5
90,90,504.00 5,48,60,451.6
0
9,88,101.15
Apr-13 67,05,744.00 3,72,69,661.4
8
67,05,744.00 3,78,69,675.3
6
6,00,013.88
May-
13
1,29,55,632.
00
7,58,82,632.2
0
1,29,55,632.
00
7,73,28,317.7
6
14,45,685.5
6
Jun-13 49,89,336.00 2,96,11,610.1
6
49,89,336.00 3,06,31,842.9
6
10,20,232.8
0
Jul-13 2,18,84,760.
00
12,99,54,612.
14
2,18,84,760.
00
13,42,96,271.
28
43,41,659.1
4
Aug-
13
1,45,77,792.
00
8,54,15,038.7
7
1,45,77,792.
00
8,88,14,514.7
2
33,99,475.9
5
Sep-13 1,80,34,248.
00
10,57,70,642.
52
1,80,34,248.
00
11,04,22,749.
36
46,52,106.8
4
%tal 20,93,65,716 1,24,97,16,02 20,93,65,716 1,28,36,72,27 3,39,56,252.
.00 2.84 .00 5.68 84
3. REPL have entered into a purchase agreement with M/s Gillete India Ltd
for supply of tooth brushes manufactured by them and also for procurement
and supply of tooth brush from M/s Breach Oralcare (P) Ltd, Vadodara as per
the following terms & conditions.
a)They have to supply of 26,00,00,000 Manual Tooth Brushes and
2,40,00,000 retail packed brushes for every year by producing or
procuring from others whatsoever. The specifcation of the products is as
per requirement of M/s Gillete India Ltd.(Para 2.1 of the agreement)
b)They have to operate 24 hours per day on 6 days per week as forecasts
require. If M/s Gillete India Ltd requires M/s Rialto Enterprises Pvt Ltd
to operate in excess, they will negotiate for such additional operating time
and related cost.(Para 2.1 of the agreement)
c)M/s Gillete India Ltd will give 3 months forecast of their requirement to
M/s Rialto Enterprises Pvt Ltd for production planning (including sub
contractor). (Para 2.1 of the agreement)
d)If any goods or parts thereof are not in full compliance with this
agreement, M/s Gillete India Ltd entitled to return the goods or parts
thereof to M/s Rialto Enterprises Pvt. It is the responsibility of REPL to
rework such goods in their own expense.(Para 2.3 of the agreement)
e)REPL at their own cost will test the raw materials and the goods to
ensure the specifcation & quality required by M/s Gillete India Ltd.(Para
2.6 of the agreement)
f)REPL at their own expense will retain samples of the goods to as per law
or the specifcation of M/s Gillete India Ltd.(Para 2.7 of the agreement)
g)REPL will compliance to any enquiry from any authority regarding goods
and will promptly make available the same to M/s Gillete India Ltd. (Para
2.8 of the agreement)
h)REPL will comply with Quality Assurance Key Elements(QAKE) of M/s
Gillete India Ltd and M/s Gillete India Ltd is entitled to periodically audit
the manufacturing activity of M/s Rialto Enterprises Pvt (Para 2.9 of the
agreement)
i)REPL will meet minimum criteria and provide a written report at the
request of M/s Gillete India Ltd. (Para 2.10 of the agreement)
j)REPL could have knowledge of goods that are not in compliance with the
terms & condition of the agreement or contained critical defect and
inform M/s Gillete India Ltd in writing. (Para 2.13 of the agreement)
k)The combined defect rate of the goods will not exceed 1000 PPM(Parts per
million). (Para 2.14 of the agreement)
l)M/s Gillete India Ltd Pvt entitled to suspend the performance of M/s
Rialto Enterprises Pvt Ltd in case of goods contain any defect resulting
substantial risk of bodily injury, death or damage to personal property.
REPL will develop detailed plan with the approval of M/s Gillete India
Ltd to eliminate the critical defects.(Para 2.15 of the agreement)
m)REPL will identify cost savings equivalent to minimum 2.5% of price on
annual basis.(Para 3.6 of the agreement)
n)REPL will not employ children, prison labor, indentured labor, bonded
labor or use corporal punishment or other forms of mental and physical
coercion as a form of discipline. (Para 5.6 of the agreement)
4. From the above, it could be observed that REPL are operating on behalf
of M/s Gillete India Ltd for the manufacturing and supply of tooth brushes as
well as procurement & supply of tooth brushes. Also, it could be observed from
the terms and conditions of the agreement that M/s Gillete India Ltd is having
full control over all the activities of REPL. In other words REPL is providing to
services to M/s Gillete India Ltd for manufacturing and procurement & supply
of tooth brushes.
5. The service of manufacturing activity done by REPL is exempted from
payment of Service Tax vide SI No. 30(c) of Notifcation No. 12/2012-ST dated
17.03.2012 since they pay duty on tooth brush manufactured and supplied to
M/s Gillete India Ltd. However, the activity of procurement and supply of tooth
brushes undertaken by the REPL, is a service as per the Section 65B(44) of
Finance Act, 1994.
6. As per Section 65B(44) of Finance Act, 1994, service means any
activity carried out by a person for another for consideration, and includes a
declared service, but shall not include an activity which constitutes merely a
transfer of title in goods or immovable property, by way of sale, gift or in any
other manner.
7. As per Section-2(h) of Central Excise Act, 1944 "sale" and "purchase",
with their grammatical variations and cognate expressions, mean any transfer
of the possession of goods by one person to another in the ordinary course of
trade or business for cash or deferred payment or other valuable consideration.
In this connection, it may be noted that Trading means the act of buying and
selling and it involves the selling of goods in the same form as it was purchased
and it involves no further processing or activity thereupon.
8. Whereas, REPL have undertaken procurement and supply of tooth
brushes only for M/s Gillete India Ltd., which includes the following elements
of services as per the requirement of M/s Gillete India Ltd under the Purchase
Agreement.
Testing,
Sampling,
Scheduled supply,
Cost reduction,
Defect rectifcation etc.,
Therefore it appears that the activity of procurement and supply of tooth
brushes undertaken by the assessee is not a trading or selling, but it is a
service defned under Section 65B(44) of Finance Act, 1994.
10. Therefore, it appears that the activity of procurement and supply of tooth
brushes undertaken by REPL is not qualify to be a trading listed in the
Negative list vide Sub-section (e) of Section-66D of Finance Act, 1994.
Consequently, their activity will be covered under the meaning of service
defned under the Section 65B(44) of Finance Act, 1994, leviable to Service Tax
under Section-66(B) of Finance Act, 1994 (Services other than Negative list)
w.e.f. 01.07.2012
9. Further, it could be observed from Section 65(19) of Finance Act, 1994
that the procurement and supply of goods intended to clients is covered under
the defnition of "Business Auxillary Service" and taxable to Service Tax as per
Section 105(zzp) of Finance Act, 1994. Therefore, it appears that the activity of
procurement and supply of tooth brushes undertaken by REPL., is also a
service defned under the Section-65(19) of Finance Act, 1994, taxable to
Service Tax under Section 66 of Finance Act, 1994 prior to 01.07.2012.
10. During the period July 2009 to June 2014, REPL have received Rs.
./- towards the commission/margin for procurement and supply of
Nos of duty paid to M/s. Gillete India Ltd, as per the Purchase agreement dated
23.06.2011.The Service Tax payable by REPL on the commission/margin
received by them works out to Rs./-.
11. REPL have suppressed to the Department that they had undertaken the
Service of procurement and supply of tooth brushes to M/s Gillete India Ltd.,
which includes services like Testing, Sampling, Scheduled supply, Cost
reduction, Defect rectifcation etc., with a intention to evade payment of Service
Tax on the services rendered by them, therefore it appears that they are liable
for penalty under Section 78 of Finance Act, 1994. REPL are liable to Service
Tax under Section 68 of Finance Act, 1994 on the service of procurement and
supply of tooth brushes, have failed to pay the Service Tax, therefore it
appears that they are liable for penalty under Section 78 of Finance Act, 1994.
Further, REPL have not obtained Service Tax Registration required to be taken
in accordance with Section 69 of Finance Act, 1994, hence they are liable for
penalty under Section 77 of Finance Act, 1994

12. REPL are therefore required to show cause within thirty days from the
receipt of this notice to the Assistant Commissioner of Central Excise,
Thambaram I Division as to why :
(i) an
amount of Rs/- (Rupees .. only) should
not be recovered under proviso to Section 73(1) of Finance Act, 1994;
(ii) interest
on (i) above should not be demanded under Section 75 of Finance
Act, 1994;
(iii) a
penalty should not be imposed on them under Section 76 of Finance
Act, 1994;
(iv) a penalty
should not be imposed on them under Section 77(1) of Finance Act,
1994; and
(v) a penalty
should not be imposed on them under Section 78 of Finance Act,
1994.
13. REPL are further required to produce, at the time of showing cause, all the
evidences and documents upon which they intend to rely in support of their
defence. They are also required to indicate in their written reply as to whether
they wish to be heard in person before the case is adjudicated failing which it
will be construed that they do not desire to be heard in person.
14. If no cause is shown against the action proposed to be initiated within
thirty days of receipt of this notice or having shown cause, they do not appear
before the adjudicating authority when the case is posted for hearing, the case
will be decided ex-parte based on the evidences available on record.
15. This Show Cause Notice is issued without prejudice to any further action
or any proceedings, which may be initiated against them under the Finance
Act, 1994 or Rules made there under or any other law in force in India.
ADDITIONAL COMMISSIONER
To
M/s. Rialto Enterprises Pvt. Ltd. S.No.100/1,Vendallur Kellambakkam Road,
Melakottaiyur, Chennai-48,
(By R.P.A.D.)
The Superintendent of Central Excise,
Service Tax Cell
Tambaram I Division.