Trader in scrap not liable to collect TCS u/s 206C if scrap not a result of manufacturing
ABCAUS Case Law Citation:
ABCAUS 3284 (2020) (03) ITAT
Important case law relied upon by the parties:
Navine Fluorine International Ltd. vs. ACIT (TDS)
Nathulal P. Lavti vs. ITO(TDS)
M/s Bharti Auto Products vs. CIT
Dhasawala Traders vs. ITO’
Shri Azizbhai A. Lada vs. ITO(TDS)
ITO (TDS) vs. M/s Priya Blue Industries Pvt. Ltd
In the instant case, the appeal was filed by the assessee against the orders of the CIT(A) for three Assessment Years in inter alia upholding the business activity of the assessee as an activity of sale of scrap, as defined in section 206C(1) of the Income Tax Act, 1961 (the Act) and treating the appellant as an assessee in default for not collecting TCS @ 1% on the entire sale proceeds made by the appellant firm.
The assessee was dealing in the business of trading of scrap and during the years under consideration, the Assessing Officer held that the assessee was liable to collect TCS @ 1% of the sale amount, from the buyers, which the assessee did not do and therefore, the Assessing Officer passed an order under section 206C(6), 206C(6A) and 206C(7) of the Act.
The assessee, before the Assessing Officer and the CIT(A) submitted that the sale/trading done by the assessee did not tantamount to sale of scrap as defined in Explanation (b) to section 206C of the Act, as the same had not been generated from manufacture or mechanical working done by the assessee.
Trader in scrap not liable to collect TCS
The Tribunal observed that it was undisputed that the assessee was not a manufacturer and was only a dealer in scrap. During the years under consideration, the assessee had sold scrap, which included unburned transformer coils from various distribution companies of UPPCL.
The Tribunal noted that the question as to whether a trader in scrap is liable to be fastened with liability to collect TCS under section 206C came up for consideration of the Coordinate Bench of the ITAT wherein, the ITAT held that to fall under the definition of scrap as given in the Explanation to section 206C of the Act, the term ‘waste’ and ‘scrap’ are one and which should arise from manufacture and if the scrap is not coming out of manufacture, then the items do not fall under the definition of scrap and thus not liable to TCS.
It was further noted that the Special Bench of the Coordinate Bench of the Tribunal had held that irrespective of manufacturing, all the traders in scrap are liable to collect TCS under the provisions of section 206C of the Act.
However, the Tribunal observed that in another decision the ITAT had held that the words ‘waste’ and ‘scrap’ should have nexus with manufacturing or mechanical working of materials. The Hon’ble High Court had upheld the findings of the Tribunal that the products obtained by the assessee in the course of ship breaking activity are usable as such, and, therefore, do not fall within the definition of scrap. The Hon’ble High Court had held that the expression “scrap” is defined in clause (b) of the Explanation to section 206C of the Act to mean ‘waste’ and ‘scrap’ from manufacture of mechanical working of materials, which is definitely not useable as such, because of breakage, cutting up, wear and other reasons; and that a plain reading of the expression ‘scrap’ as envisaged under the provisions contained in clause (b) of the Explanation to section 206C of the Act, shows that any material which is useable as such, would not fall within the ambit of “scrap”. The order of the Tribunal was upheld as being one on facts.
The Tribunal observed that in yet another case, the Coordinate Bench of the Tribunal, following the judgment of the Hon’ble Gujarat High Court had held that held that where the assessee had not generated any scrap in manufacturing activity, as contemplated under the Explanation to section 206C of the Act, and where the assessee was only a trader, having not sold scrap as such, but having sold products which were re-useable and had resulted from ship breaking activity, he was not supposed to collect tax under section 206C of the Act.
The Tribunal rejected the contention of the Revenue that the Hon’ble High Court had not taken into consideration the said decision of the Special Bench as one of the question of law framed by the Hon’ble High Court was similar to the issue in hand. The Lordships, had unambiguously held that since the Tribunal had remitted the matter to the Assessing Officer after recording a finding of fact, the order of the Tribunal did not give rise to a question of law.
Accordingly, the Tribunal decided the grounds in favour of the assessee.
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