Sale of scrap not generated from a manufacturing/mechanical process not liable to TCS u/s 206C of the Act although to be liable seller need not be a manufacturer itself – ITAT
In a recent judgment, the ITAT Cochin has held that a seller is liable to deduct TDS u/s 206C on sale of scrap generated from a manufacturing/mechanical process irrespective of if seller is himself manufacturer or not
ABCAUS Case Law Citation:
ABCAUS 4077 (2024) (06) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order declaring the assessee in default for non collection of TCS u/s 206C of the Income Tax Act, 1961 (the Act) on scrap sale.
The appellant assessee was a dealer in scrap. He was subject to survey u/s 133A of the Act whereby it was found that he had not collected tax at source from the buyers of the scrap as required by the provisions of section 206C of the Act. As a result, the assessee was declared as assessee in default for TCS not collected on sale of scrap.
Before the CIT(A), the assessee contended that he was only a dealer in scrap. The items dealt with by him being old aluminum, steel, plastic and iron vessels, having been not generated in a manufacturing or mechanical process and, accordingly, cannot be regarded as a ‘waste’ or ‘scrap’. Also, the processing/recycling of these goods was not done by him, but sold by him as such to manufacturers, who in turn use it as raw material.
The CIT(A) held that it was not necessary that the manufacture or mechanical process was carried by the assessee (seller) himself. He, confirmed the assessment relying on the judgment of the Co-ordinate Bench wherein it was clarified that resale would not impart a different character to the subject matter of sale, which shall continue to be scrap, which in that case was procured from Railways.
Therefore, the point for determination before the Tribunal was as to if the goods sold by a scrap dealer, fall under the definition of scrap under Explanation (b) to Section 206C of the Act.
The assessee relying on the decision of Lucknow ITAT contended that scrap, to qualify as so, should arise out of manufacturing activity.
The Tribunal observed that the Lucknow ITAT had in turn relied upon the orders of the Tribunal in other cases, as well as by the Hon’ble Gujarat High Court.
The Tribunal noted that the Hon’ble High Court had categorically stated that as the impugned order by the Tribunal was based on findings of fact, it does not give rise to a question of law. The only opinion on a matter of law expressed by it, was to the effect that the material not usable as such would fall within the ambit of scrap as envisaged under Explanation (b) to section 206C of the Act.
The Tribunal opined that the aspect that if the assessee is liable u/s 206C inasmuch as he is not a manufacturer, but a trader, is, no longer res integra in view of the clear definition of a ‘seller’, an aspect clarified by the Rajkot Tribunal per it’s larger Bench decision as noted by the Lucknow Bench. In view of the above, the Tribunal held that assessee was clearly a ‘seller’ u/s. 206C.
The Tribunal further observed that the liability to collect tax at source, fastened on a seller thereby, is with reference to the nature of the goods sold, i.e., scrap, irrespective of how the same came in his hands. As a result, the very issue arising therefore, is if the same, to qualify as one, is to be generated from a manufacturing or other mechanical process?
The Tribunal opined that it is clearly of the view which in turn is in agreement with several decisions relied upon by Lucknow ITAT that it must, to qualify as scrap, arise from a manufacturing or mechanical process.
The Tribunal further observed that though the ITA Lucknow had further stated that the assessee (seller) should also be a manufacturer, but there is nothing to that effect either in the provision or in the orders by the Tribunal followed by it, and is, rather, inconsistent with the decision by the Hon’ble High Court. There is no ambiguity in the terms ‘scrap’ and ‘seller’, which have to be independently satisfied for the invocation of the provision.
The Tribunal observed that assessee had stated that the scrap dealt with by him was old aluminum, steel, plastic, and iron vessels. There was no finding in the matter by the Revenue authorities regarding the nature and the manner of its generation. The invoices merely mentioned the nature of the commodity/item sold as iron scrap; steel scrap, almunium scrap; plastic waste, and did not throw any light on the nature of the scrap or waste sold by the assessee as scrap.
Accordingly, the Tribunal set aside the impugned order to the file of the AO with burden on the assessee to prove the nature of the scrap, i.e., it arising from a manufacturing or mechanical working, not usable as such, or otherwise, resulting in the same being regarded as ‘scrap’ or, as the case may be, not so, within the meaning thereof u/s. 206C of the Act.
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