ITAT AMRITSAR BENCH
Income-tax Officer (TDS)-1, Jalandhar
Nawanshahar Co-op. Sugar Mills Ltd.
H.S. SIDHU, JUDICIAL MEMBER
AND B.P.JAIN, ACCOUNTANT MEMBER
IT Appeal NOS. 311 TO 314 (ASR.) OF 2012
[ASSESSMENT YEARS 2007-08 TO 2010-11]
NOVEMBER 19, 2012
1. The Revenue has filed these four appeals against the consolidated impugned order of CIT(A), Jalandhar, dated 28.05.2012 for the assessment years 2007-08, 2008-09, 2009-2010 & 2010-2011 respectively. As the issue involved in all these appeals is common, these were heard together and are being disposed off by this consolidated order for the sake of convenience.
2. The grounds raised by the Revenue in ITA No. 311 (Asr)/2012 for the assessment year 2007-08 are reproduced here under, as the grounds raised in other appeals are also identical:
“1. The Ld. CIT(A) has erred on facts and in law in holding that the Bagasses is not covered under the definition of scraps as per section 206(C) and therefore the assessee was not liable to collect tax at source.
2. That appellant craves to add or amend any ground of appeal before the appeal is finally heard and disposed off.”
2.1 The brief facts are that the assessee is a Cooperative Society and is engaged in manufacturing of sugar. Inspection u/s 133A of the Income Tax Act, 1961 (hereinafter called ‘the Act’) was carried out at assessee’s Sugar Mill on 29.12.2010 to verify the compliance of the provisions of the TDS/TCS under Chapter XVII of the Act. The AO found certain discrepancies which include that the assessee is selling Molasses and Bagasses generated during the manufacturing process to different persons without collect tax at source u/s 206C of the Act. In response to the query, as to how the provisions of TCS were not applicable on sale of these items, the person responsible (in short ‘PR’) vide his reply dated 09.03.2011 has sated that Molasses generated during manufacturing process could not be termed as ‘scrap’ for the purpose of section 206C since it is a by-product of the process of manufacture. Secondly, Molasses is different from scrap as it is a distinct product produced during the course of manufacture of sugar, it is marketable as such and it is a product on which excise duty is levied and is usable as such. As regards bagasses, it is contended that it is used as bio fuel. Also, it is used as a renewable resource in the manufacture of pulp and paper products and building materials. The assessee finally contended that both Molasses and Bagasses did not fall within the definition of scrap as per Explanation (b) to section 206C of the Act. The AO considered the submissions of assessee and did not accept the same and held that the assessee was liable to collect tax at source on the sale of Molasses and similarly as regards to Bagasses, the same is being sold to M/s. ABC Paper Mill Ltd; use it for manufacture of pulp, paper and building materials. No tax has been collect at source nor any declaration u/s 27C has been obtained from the company. With the same analogy, the assessee has not complied with the provisions governing collection of tax at source on the sale of bagasse also and AO was satisfied that the assessee was liable to collect tax at source on sale of molasses and bagassse since the same waste in the assessee’s business which is manufacture of sugar and the assessee has failed to collect the tax at source and is in default and also liable to pay tax involved to the credit of Central Govt. A/c within the meaning of section 206C(6A) of the Act. The AO has calculated the amount of default for the assessment year under consideration along with interest u/s 206C(7) of the Act, in the impugned order.
3. Aggrieved by the order passed by the ITO, (TDS)-1, Jalandhar, assessee filed an appeal before the Ld. CIT(A), who vide combined impugned order dated 28.05.2012 partly allowed the appeal of the assessee by holding that Bagasses are not scrap for the purpose of section 206C of the Act. He upheld the action of the AO in holding the assessee to be in default u/s 206C(6) of the Act in respect of sale of molasses and charging interest u/s 206C(7) of the Act. The Ld. CIT(A) finally held that in respect of the sale of Bagasses by the assessee, the assessee is not to liable to collect tax at source u/s 206C(1) of the Act and consequent demand raised u/s 206C(6) and the interest charged u/s 206C(7) of the Act are vacated and he directed the AO to modify the demand raised on account of non-collection at source and the interest payable by the assessee vide impugned order dated 28.05.2012 for the assessment years in dispute. Now, aggrieved by the order of the Ld. CIT(A), the Revenue has filed the present appeal before this Bench.
4. At the time of hearing, the Ld. DR relied upon the order passed by the AO and stated that the Ld. first appellate authority has wrongly held that the Bagasse is not covered under the definition of scrap as per provisions of section 206C and assessee was not liable to collect tax at source. He also drew our attention towards definition of section 206C of the Act as well as the definition of Molasses and Bagasses as well as the scrap and requested that the appeal filed by the Revenue may be accepted and the impugned order of the ld. first appellate authority may be modified by restoring the order of the A.O.
5. On the contrary, the ld. counsel for the assessee controverted the arguments advanced by the ld. DR and stated that the ld. first appellate authority has decided the issue in dispute by respectfully following the various passed by the Honorable Apex Court as well as by the ITAT. Therefore, he prayed that the impugned order may be upheld by dismissing the appeal filed by the Revenue.
6. We have heard both the parties and perused the relevant records available with us, especially the citations cited by the ld. first appellate authority in the impugned order. No doubt, the Inspecting Officer during the course of inspection has noticed that there are some discrepancies in collecting tax at source u/s 206C of the Act (sale of Molasses & Bagasses) and the AO called the explanation from the assessee. The assessee i.e. Person Responsible for deducting tax at source has given his explanation that Molasses and Bagasse and Bagasse generated during the manufacturing process could not be termed as scrap for the purpose of section 206C since it is a by-product of the process of manufacture. Therefore, Molasses and Bagasses are different from scrap and did not fall within the definition of scrap as per Explanation (b) to Section 206C of the Act. The AO did not accept the submissions of the assessee and rejected the same and held that the material sold by the assessee as ‘waste’ was not usable as such but required a number of processes before being able to put to use. Therefore, the assessee was liable to collect tax at source on the sale of molasses. But as regards Bagasse, the same is being sold to M/s. ABC Paper Mills Ltd. who used it for the manufacture of pulp, paper and building materials. No tax has been collected at source nor any declaration under form 27C has been obtained from the company and the assessee has not complied with the provisions governing collection of tax at source on the sale of bagasse also and the person responsible is liable to collect tax at source on the sale of these items. Since the assessee has failed to collect the tax at source and the assessee is in default and liable to pay the tax involved to the credit of Central Govt. A/c within the meaning of section 206C(6A) of the Act, the A.O. calculated the tax and interest in the impugned order for the assessment year in dispute. The Ld. CIT(A) after hearing both the parties in detail and thoroughly going through the definition of Molasses and Bagasses as well as the ‘scrap’ and ‘waste’ with the help of recent decision of ITAT Ahmedabad Bench in the case of Navnine Flourine International Ltd. v. Asstt. CIT  14 ITR 481/ 45 SOT 86 as well as by relying upon the judgment of Hon’ble Supreme Court in the case of Gurudevdatta VKSSS Maryadit v. State of Maharashtra AIR 2001 SC, 1980 has held that adding meaning to the simple meaning laid down in the statute is against the principles of interpretation. The Ld. CIT(A) has considered the written submissions of the assessee thoroughly in which the assessee has contended that A.O. has given some reference regarding processing of petroleum products wherein various products emerge while processing of crude oil to petrol. These products are not considered as scrap. Similarly, in the case of production of sugar, molasses and bagasses emerge as distinct saleable products. Molasses and bagasses are therefore, not scrap as cited in the example of petroleum products by the AO. They are not ‘waste’ and ‘scrap’ and can also be used as such, thus, coming out of the meaning of scrap.
6.1 The Ld. first appellate authority after discussing in detail the written submissions of both the parties along with various case laws as well as Sugarcane Control order (1966) dated 16.07.1966 finally concluded in paras 12, 13, 13.1, 14, 15 & 16 as under:
“12 In a manufacturing concern, raw material is converted into certain products. The product manufactured by the concern is usually termed the finished product of the concern, even though the same may not be usable directly by the customer, and may have to be further processed by another concern or be part of the component of another product manufactured by another concern. In the course of manufacture of the finished product, certain intermediate products may be manufactured or some semi-finished goods may be made ready, which need further processing to become finished goods. Certain by-products may also be generated in the manufacturing process. Bye product is normally considered as a product which is not intended to be manufactured, but is being obtained in the process of manufacturing of another product which is intended to be manufactured. Certain waste and scrap may also be generated in the manufacturing process as by-products.
13. In the case of Tata Iron & Steel Co. Ltd. v. C.C.E, dated 16 December,1994, 1994 SCC (1) 323, JT 1995 (1) 72, the Honorable Apex Court noted that ‘scrap’ according to dictionary meant ‘”a small piece cut or broken from something; fragment”. They noted that in commercial parlance ‘scrap’ was normally understood as ‘waste’ though it may be used for re-rolling or re-melting for bringing out raw material to be used for producing finished products. The Honorable Apex Court held that scrap was normally understood as something which was not serviceable, but that this term could not apply to a semi-finished product. It was further held that a substandard article was not scrap as understood in commercial parlance or trade circle. In the case of Navine Fluorine International Ltd. v. ACIT, TDS Circle, Surat (supra) relied upon by the appellant, the Honorable Tribunal have noted that the ordinary meaning of scrap and waste as had been provided in Oxford English Dictionary was:-
(a) Scrap – Small piece or amount of something especially one that is leftover after greater part has been used – material discarded for reprocessing.
(b) Waste-eliminated or discarded as no longer useful or required.
13.1 Thus, scrap means something left behind from the bigger part, not serviceable, leftover, but something that could be used for reprocessing or bringing out raw material or other useful product. It may have insignificant value, since scrap produced in several industries is sold for large values, e.g. in the iron and steel industry.
14. In the process of manufacture of sugar, molasses is left behind after the sugar has crystallized from the syrup. Molasses cannot be used directly. Till some time ago, disposal of molasses used to be a big problem, as observed by the Honorable Apex Court in the case of Atma Ram (Died) Thru LRs v. State of Haryana  2 SCC 568. Hence, it was certainly waste and scrap earlier. However, with the development of technology, molasses are being produced in large quantities for producing alcohol and ethanol. However, with the development of technology, molasses are being produced in large quantities for producing alcohol and ethanol. However, in my opinion, merely molasses have found use for producing commercially valuable products, its nature as a waste or scrap will not change. Molasses is essentially a leftover from the process of manufacture of sugar. It cannot be used directly and needs to be processed for extracting alcohol or ethanol from it, or for putting it to any other use. In that sense, it is different from the output of various products from a petrochemical plan processing crude. This plant yields several products like diesel, petrol, kerosene, etc; which can be used directly. Molasses, however, cannot be used directly and is also a leftover from the sugar manufacturing process. Hence, I uphold the view of the AO that molasses was ‘scrap’ as defined in Explanation (b) to section 206C.
15. As far as bagasse is concerned, I find that apart from the use of bagasse for manufacturing paper – by which use alone it would fall in the same category as molasses for the reasons discussed above – it is quite often and commonly used as a fuel, usually in the sugar mill themselves. The sugarcane fibrous waste is initially moist after crushing, but most mills use them as fuel after drying. Hence, even though bagasse is in the nature of scrap and waste because of its nature, since it can be used directly as a fuel, I hold that it should not be considered as ‘scrap’ for the purpose of section 206C of the Act.
16. In the light of the discussion and decision above, I uphold the action of the AO in holding the assessee to be in default u/s 206C(6) of the Act in respect of the sale and molasses. The action of the AO in charging interest u/s 206C(7) of the Act in respect of the aforesaid default is also upheld. However, in respect of sale of bagasse by the assessee, the assessee is held not to liable to collect at source u/s 206(1) of the Act. The consequent demand raised u/s 206C(6) and the interest charged u/s 206C(7) of the Act are vacated in respect of such sale of bagasse. The Ld. AO is directed to modify the demand raised on account of non-collection at source and the interest payable by the assessee, accordingly. This decision will apply to all the four assessment years under appeal.”
6.2 After going through the well reasoned order passed by the ld. first appellate authority in which the ld. first appellate authority has elaborately discussed the issue in dispute and various decisions rendered by the Honorable Apex Court as well as various other courts and finally covered the Molasses under the definition of Explanation (b) to Section 206C of the Act. As regards to Bagasse is concerned, he held that it should not be considered as ‘scrap’ for the purpose of section 206C of the Act. In view of the above discussions and after going through the order of the ld. first appellate authority, we are of the view that the ld. first appellate authority has passed a well reasoned order, which needs not interference and accordingly we uphold the impugned order by dismissing the appeal filed by the Revenue.
7. Now, we take up appeals of the Revenue in ITA Nos. 312, 313 & 314(Asr)/2012. The facts of these cases are similar to the facts discussed supra in ITA No. 311(Asr)/2012. Therefore, applying the same ratio, we dismiss these appeals of the Revenue also.
8. In the result, all the four appeals of the Revenue are dismissed.