As per Section 206C of Income Tax Act, 1961 (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

Sl. No. Nature of goods Percentage

(1)

(2)

(3)

(i) Alcoholic Liquor for human consumption One per cent
(ii) Tendu leaves Five per cent
(iii) Timber obtained under a forest lease Two and one-half per cent
(iv) Timber obtained by any mode other than under a forest lease Two and one-half per cent
(v) Any other forest produce not being timber or tendu leaves Two and one-half per cent
(vi) Scrap One per cent
(vii) Minerals, being coal or lignite or iron ore One per cent:

The Word SCRAP is defined as : Scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons

The following words of definition are essential to interpret

Words Meaning
means exhaustive definition
waste and scrap Waste and Scrap is singular , as word “which is” used in definition later
from manufacture this waste and Scrap must be generated from Manufacturing activities
or mechanical working Or this waste and Scrap must be generated from Mechanical working of Material

Mechanical working means Physical operations on a material that deform it into a desired shape, such as bending, cutting, drawing, grinding, hammering, rolling, shaving, and twisting

of Material the waste and Scrap must be generated from material used in manufacturing or mechanical work
which is it shows waste and scrap must be read as singular
definitely not usable as such such waste and scrap is no usable is same form entirely
because of breakage, cutting up, wear and other reasons because this is broken/cut in pieces/temped/wear/ or other reason

The definition contains:-

Scrap from Manufacturing of Material: –  The word manufacture is defined in section 2(29BA) of Income Tax Act, 1961 as “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,—

(a)  resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

(b)  bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure

Scrap from Manufacturing of Material {(like sugar cane (input) is crushed into machine, juice come out (output) and squeezed sugar cane leftover, assuming other thing are constant) here we are talking about  scrap, which is generated from material like in above example squeezed sugar cane is scrap}

i) Factory:-In factory raw material is used as input to manufacture final output. Therefore anything rest after raw material processing, which may not be used in same form, may be treated as Scrap.

ii) Administrative Offices: An Administrative office is place where official works which are mostly relates to paper work, coordination work, meeting and liaisoning are carried out. There is no manufacturing activity.

iii) Storage Location/Warehouse: Here no manufacturing of material is carried out. As only goods are stored and dispatched.

2) Scrap from Mechanical working of Material:-  The word Mechanical working is nowhere defined in IT Act. As per law dictionary Mechanical working means Physical operations on a material that deform it into a desired shape, such as bending, cutting, drawing, grinding, hammering, rolling, shaving, and twisting. Here Scrap from Mechanical working of Material {(like sugar cane (input) is crushed in machine(mechanical working), juice come out (output) and squeezed sugar cane leftover) here we are talking about scrap from, Mechanical working of material like in above example crushing of sugar cane in machine is mechanical working}. Or it may be said that when we cut pipes or twist iron etc as desired then anything leftover from this material is scrap.

i) Factory: in Factory large numbers of machines are used for mechanical working of raw material/Semi Finished Product etc. Therefore selling of such machines/part thereof (which may not used as same form) may be treated as Scrap.

ii) Administrative Offices The selling of machine/part thereof like Furniture, Iron ferrous or non-ferrous scrap, dismantled electronic items etc, which don’t involve in mechanical working of material. Therefore these may not be termed as scarp for applicability of section 206C.

iii) Storage Location/Warehouse: Here neither any material is manufactured nor any mechanical working of material is carried out. Therefore selling of scrap items from these location may not be termed as scrap for the purpose of section 206C

Therefore responsibility to collect TCS comes when Scrap is sold and such Scrap must be come out from manufacture or mechanical work of material.

A scrap may be generated from following location of company

Location Status
Administrative Office No Manufacturing or Mechanical working of Material is carried out
Guest House No Manufacturing or Mechanical working of Material is carried out
Training Centre No Manufacturing or Mechanical working of Material is carried out
Storage Location No Manufacturing or Mechanical working of Material is carried out
Factory Manufacturing or Mechanical working of material is carried out

Following type of waste are dealt by us

Type of Waste Applicability of TCS
Office Items (computer/printer/stationery/Furniture etc) it is not a scrap for applicability of TCS
Sale of machinery/part thereof it is not a scrap for applicability of TCS except sold by Factory. Selling of electronic items like TV/Penal/AC etc from Factory will also not attract TCS.
Sale of broken pipe/iron items it is not a scrap for applicability of TCS except sold by Factory.
Residual item out of manufacturing of Material TCS is collectable
Chemicals it is not a scrap for applicability of TCS
others it is not a scrap for applicability of TCS

Please note

1) As per sub-section (1A) of section 206C,  Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form (Form-27C) and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes

2) (1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the [Principal Chief Commissioner or] Chief Commissioner or  [Principal Commissioner or] Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him

Note: any type of packing material/ storage material/containers/tanker/Barrel may not be classified as scrap under this section.

Republished with Amendments

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28 Comments

  1. Ashish Agrawal says:

    sir
    my trading business scrap.
    Those I buy do not pay tax (trader not manuf)
    So even I do not collect tax from the party I sell (trader not manuf)
    so plz suggest

  2. Pawan Sehrawat says:

    Your views are useful, in case assessee failed to collect TCS and now assessee want to contest it.
    Otherwise, CBDT has already clarified in in May 2012, stating that all types of scraps are covered to collect 1% TCS.
    TCS on Scrap – CBDT Circular No. FNo. 275/86/2011-IT (B) dated 18-05-2012
    https://caa-ahm.org/Pdf/Legal/Legal-106.pdf

  3. shankar says:

    we have into casting manufacture. we are purchasing scrap from the suppler which is used for heat treatment. Now scrap which is purchased from supplier is not quality so now we selling same to other scrap seller whether for this transaction TCS is applicable or not

  4. HITESH SHAH says:

    Sir,
    I AM A TRADERS OF FERROUS NON FERROUS METAL,I PURCHASE SHEET/PLATE SCRAP AND SELLER CHARGED TCS ON MATERIAL,BUT I SOLD SAME MATERIAL TO ANOTHER PARTY ,SHOULD I CHARGED TCS ON SALES AMOUNT OR NOT ?

  5. sanjeev says:

    dear sir,

    we are recycling the e-west. dismantlement all type of electronics goods and sold them like plastic, copper, iron, aluminium the we charge tcs on invoice we genrate or not

  6. Ranjana Singh says:

    TCS on Sale of Scrap

    The term scrap has been clearly defined in the explanation to section 206(C) of Income Tax Act,1961 . There is no requirement that the goods to be eligible for scrap should be produced/ manufactured by the seller itself.

    As per said section “scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons

    “mechanical working of materials” means any article or thing arising from the physical operations on materials which is not usable ‘as such’.

    The applicability of TCS on scrap traders has been amply clarified by the CBDT in its letter F.NO. 175/86/2011-IT(B) dated 18th/21st May, 2012.

    When TCS on Scrap not to be deducted

    As per taxation laws (Amendment) act 2003, w.e.f. 8-9-2003, if a buyer in the retail sale of such goods buys it for personal consumption and furnishes before the seller such declaration in prescribed form 27C, then the seller is not liable to collect tax on the same.

    All sellers of Scrap, within the meaning of section 206C, including those trading in scrap are liable to collect tax at source from the buyers of such scrap. However, if the buyer declares by furnishing form 27C before the seller its purpose for obtaining such goods being manufacturing/processing/ producing articles and not trading purpose then the seller is exempted from collecting such tax from such buyer.

  7. Chethan says:

    we are doing Scrap sale of below items will impact on TCS , If yes what is the percentage .
    Car Doors, News Paper, Radiator, Aluminium Chips
    Card Board & Wooden Box .

  8. M. Rizwan says:

    We are a Trader ,purchasing rejected sheet ( HSNcode 72101290 ) from a Can manufacturer. They charged from us 1% TCS.
    Should we also charged TCS from our customers to whom we supplied material as it is ?
    Can we claim the TCS

  9. Dishant Doshi says:

    The company is into manufacturing chemicals and scrap of drums, Hd Drums and in packing material -Paper bags and corrogated paper scrap is generated. Does TCS is applicable in any of the above material

  10. Shruti Agnihotriy says:

    Sir kindly enlighten me who a seller is in a government dept. In Indian Railways , scrap sale is done by the stores dept and payment is done electronically. so will the accounts dept file the 24 G or the stores dept file the 24 G ?

  11. chunilal g patel says:

    we are manufacturer of cpper winding wire.we also trade scrape sales to manufacturer.manufacturer say us dont charge tcs because we are manufacturer.how can we show in tds return in which income tax section

  12. BHARAT AGRAWAL says:

    What should do in the case of Scrap dealer ?
    Scrap dealer already paid TCS at the time of purchase.
    Whether he is liable to collect TCS at the time of resale same material to other dealer or manufacturer ?

  13. Vaidyanathan S says:

    Dear Dinesh,

    This is really an useful material.

    1. Would like to know whether below transaction is treated as “Sale of Scrap” and whether TCS to be collected by the Local Seller.

    1.1 Customer is importing Scrap out of used cars from abroad. (In abroad, say, USA – Used cars are used to be dumped by end users in an yard which is crused into parts as required and sold as scrap to other countries and our customer is importing the same).
    1.2. Customer sells the above imported scrap out of used cars as such without any value addition.

    2. In case Buyer provides Form 27C as it would be used for their consumption and in case of non compliance at later date, who has to bear the TCS (whether seller or buyer) and what would be the penalty applicability

  14. Tarsem choudhary says:

    Dear Dinesh sir

    Earlier we deduct 1% TCS on total value ( basic+excise+vat)

    Is there any change in it after GST

    On which value should I deduct TCS only on basic vale or or basic + GST

    Please guide

  15. MANISH NIM says:

    Based on the definition of scrap, it is neither waste and scrap arose out of manufacturing process/activities nor mechanical scrap and in my view it does not fall to be the product for collecting TCS on sale of it.

  16. Himani Adlakha says:

    Hello
    Mr. Dinesh,

    We are the importer/ trader of Heavy Melting Steel Scrap covered under HS code 7204 and High sea sale the same to various parties.

    Please advise whether we are covered under section 206C and liable to deduct the TCS 1%.

    Thanks & Regards
    Himani

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