Navine Fluorine International Ltd. Vs. ACIT (ITAT Ahemdabad)- The assessee was engaged in the manufacture of fluorine and other refrigerant gases. During the survey operation under section 133A it was noticed that the assessee had received payments on account of sale of scrap. The assessee company had not collected tax (TCS) at the time of receipt of the sale proceeds or at the time of debiting the account of the purchasers.
The AO, therefore, issued a show cause notice as to why the tax be not raised under section 206C (6) and interest under section 206C (7). The assessee replied that the scrap sold was plastic, M. S. & G. I. drums, wooden scrap, plastic material, used oil, electrical cables etc. It was stated as per definition of Scrap in Explanation (b) to section 206 C, the scrap should be such waste or scrap which arises from manufacturing or mechanical working of material. It was stated by the assessee that the nature of scrap generated in the assessee’s premises did not arise from manufacturing of product dealt by the company and, therefore, the provisions of section 206C were not attracted. The AO did not accept the above explanation. The details of scrap sold show that it consisted of various things, such as, packing material, oil, electrical items, etc. The AO stated that materials sold were those which had been generated from the manufacturing activity whether directly or indirectly. These materials were not usable which was evident from the narration. The AO further stated that the assessee had not obtained any declaration from the purchaser in Form No. 27C. This also substantiated the fact that the scrap purchased by the purchaser was not meant for any manufacturing but as scrap only. In view of the above, the AO invoked the provisions of section 206C and raised the tax being 1% of the sales and levied interest under section 206C (7). Held: The explanation to section 206 C provides the meaning of scrap means “waste and scrap” from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. In the above definition the important words used in the definition of scrap are “waste and scrap”-“from manufacture” and “which is”. The word “waste and scrap” are one item. Thereafter, the word used is “from” the manufacture or mechanical working of material. It would mean that the waste and scrap being one item should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the words waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. Thereafter, the word used is “which is” definitely not usable. The word “is” as used in this definition of the scrap meant for singular item i.e. “waste and scrap”. The word waste “which is” denotes to singular item and thus the singular item would be waste and scrap. The assessee was admittedly engaged in manufacturing of fluorine and other refrigerated gases and list of scrap items noted above would indicate that same cannot be used for manufacturing or mechanical working of material of fluorine and other refrigeration gases. By the nature of the scrap items noted above, the same cannot be used while manufacturing gases or doing any mechanical working of the material for the gases. The items of the scrap in the case of the assessee would not form part of the definition of the scrap as is provided in Explanation (b) to section 206C. Thus, the explanation was wrongly applied in the case of the assessee.
IN THE INCOME TAX APPELLATE TRIBUNAL
‘B’ BENCH – AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM)
ITA No. 1213 and 1214/Ahd/2010
A. Y.: 2009- 10 and 2010- 11
Navine Fluorine International Ltd. Vs The A. C. I. T., TDS Circle
ORDER
Both the appeals by the assessee are directed against the common order of the learned CIT(A)-I, Surat dated 08-02-2010 for assessment years 2009-10 and 2010-11 challenging the order of the learned CIT(A) in confirming the action of the AO holding that the assessee has failed to collect tax at sources under section 206C (6) of the IT Act on sale of scrap and consequently of charging interest under section 206C (7) of the IT Act.
2. The issue in both the appeals are regarding levy of tax under section 206 C (6) and interest under section 206C (7) of the IT Act.
3. In the assessment order the AO has stated that the assessee is engaged in the manufacture of fluorine and other refrigerant gases. During the survey operation under section 133A of the IT Act conducted on 21-07-2009 it was noticed that the assessee has received payments on account of sale of scrap. The assessee company had not collected tax (TCS) at the time of receipt of the sale proceeds or at the time of debiting the account of the purchasers. The AO, therefore, issued a show cause notice as to why the tax be not raised under section 206C (6) and interest under section 206C (7). The assessee replied that the scrap sold was plastic, M. S. & G. I. drums, wooden scrap, plastic material, used oil, electrical cables etc. It was stated as per definition of Scrap in Explanation (b) to section 206 C, the scrap should be such waste or scrap which arises from manufacturing or mechanical working of material. It was stated by the assessee that the nature of scrap generated in the assessee’s premises did not arise from manufacturing of product dealt by the company and, therefore, the provisions of section 206C were not attracted. The AO did not accept the above explanation. The details of scrap sold show that it consisted of various things, such as, packing material, oil, electrical items, etc. The list of scrap is as under:
(a) M.S./G,I. drums – first
(b) M.S./G.I. drums – second
(c) Plastic Drums – first
(d) Plastic bags
(e) Plastic lime bags (torn)
(f) Used oil in drum
(g) Wooden Scrap
(h) Scrap/ damaged old MS/ GI barrels
(i) Scrap torn plastic carbuyos
(j) Scrap – MS light
(k) Scrap – MS heavy
(l) Scrap Electrical cables
(m) Scrap plastic material
(n) Empty bromine crates
(o) Inconel 600 place 1 mtr × 2 mtr × 36 mm
The AO stated that the above list showed that materials sold were those which have been generated from the manufacturing activity whether directly or indirectly. These materials were not usable which is evident from the narration. The AO further stated that the assessee has not obtained any declaration from the purchaser in Form NO. 27C. This also substantiates the fact that the scrap purchased by the purchaser was not meant for any manufacturing but as scrap only. In view of the above, the AO invoked the provisions of section 206C and raised the tax being 1% of the sales and levied interest under section 206C (7) of the IT Act. The TCS demand raised for 2009-10 was Rs. 44,200/- and interest of Rs. 5,852/-. For assessment year 2010-11 the TCS demand raised is Rs. 33,626/- and interest of Rs. 1,241/-.
4. The orders of the AO were challenged before the learned CIT(A) and the assessee has repeated the submissions made before the AO and stated that word scrap has been defined in explanation (b) to section 206C of the IT Act to mean “waste and scrap from the manufacturing or mechanical working of materials which is definitely not usable as such because of breakages, cutting up, wear and other reasons”. From this definition, it is clear that scrap to be covered under section 206 C of the IT Act should arise from the manufacture or mechanical working of material and since the assessee’s scrap did not arise from manufacture or mechanical work of material, the provisions of section 206C of the IT Act are not attracted. The assessee, therefore, stated that the demand should be deleted.
5. The learned CIT(A) considering the submission of the assessee and the observation of the AO dismissed both the appeals of the assessee. His findings in Paras 2.3 and 3 are reproduced as under:
“2.3 I have considered the submission made by the appellant and the observation of the AO. As per the provisions of Section 206C, scrap is included on which one percent TCS is required to be collected by the assessee. The definition of scrap as stated by the appellant and the AO is also very clear, which includes any scrap which cannot be used directly for manufacturing purpose by the purchaser and which has been generated from the manufacture of mechanical work of materials. The list of items given above clearly shows that the same has been generated by the assessee company. The assessee company is only engaged in the manufacturing of fluorine and other refrigerant gases. Hence, the entire scrap has been generated out of its manufacturing activity. Therefore, the provisions of section 206C are attracted. The fact that this scrap is not directly used for manufacture is further clear as the assessee has not obtained declaration as provided under Rule 37C in the Form No. 27C. Hence, the action of the AO is confirmed and these grounds of appeal are dismissed.
3. In the result, the appeal is dismissed”.
6. We have heard the learned representatives of both the parties and perused the findings of the authorities below.
7. The learned Counsel for the assessee reiterated the submission made before the authorities below and submitted that from the definition of scrap provided in explanation (b) to section 206 C of the IT Act it would be clear and include only such waste and scrap which arises from manufacture of mechanical working of materials. Further, such waste should not be usable as such. He has further submitted that none of the items sold by the assessee arising from manufacture of products dealt by the assessee, therefore, provisions of section 206 C of the IT Act are not attracted to the scrap under reference sold by the assessee. He has submitted that the word “waste and scrap” used in explanation of scrap should be read together and should have direct connection with manufacture or mechanical working of material and as such orders of the authorities below are liable to be set aside.
8. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the intention of the legislature was clear to charge 1% tax on the scrap and that the meaning of scrap includes both waste and scrap and as such the waste or the scrap which is sold is also subjected to tax and for the waste there is no need to have any connection with manufacture or mechanical working of material. He has submitted that the assessee has admittedly sold the scrap; therefore, provisions of section 206 C of the IT Act are clearly applicable in the case of the assessee. The learned DR submitted that the word waste and scrap are different items. He has, therefore, submitted that the appeals of the assessee have no merit and the same be dismissed.
9. We have considered the rival submissions and perused the findings of the authorities below. The applicability of the provisions of section 206 C of the IT Act for charging of tax on scrap is not in dispute. It is also not in dispute that the assessee has sold scarp of various items as noted above in this order. The issue under consideration depends upon the interpretation of the meaning of scrap as is provided in explanation (b) to section 206 C of the IT Act. It is, therefore, necessary to refer to some of the relevant provisions connected with the issue provided under section 206C of the IT Act. The same reads as under: “206C. (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax:
TABLE
