Provisions of section 194C will not apply in a case where the invoices clearly show that sales tax and excise duty were collected on the supply of materials by the vendors

ACIT Vs M/s Tube Investments of India Ltd. (ITAT Chennai) – A perusal of the terms and conditions as also the invoices as found in the paper book clearly shows that sales tax and excise duty had been collected on the supply of materials by the vendors to the assessee. In these circumstances, in view of the finding of the Honourable Supreme Court in the case of Silver Oak Laboratories P. Ltd. in S.L.P. No. 18012/2009 dated 17-08-2010, referred to supra, we are of the view that the transaction involved in the present case is a contract for sale and not a contract for carrying out any works.

In the circumstances, respectfully following the principles as laid down by the Hon’ble Supreme Court in the case of Silver Oak Laboratories P. Ltd., referred to supra, the finding of the learned CIT(A) on this issue stands confirmed. In the circumstances, the appeal of the Revenue is dismissed.

The Assistant Commissioner of Income Tax v. M/s. Tube Investments of India Ltd.

ITAT Chennai

I.T.A. No. 1560/Mds/2007

Assessment Year: 2005-06

ORDER

PER GEORGE MATHAN, JUDICIAL MEMBER:

This is an appeal filed by the Revenue against the order of the learned CIT(Appeals)-IV, Chennai in appeal No. CIT(A)-IV/CHE/634/06-07 dated 06-03- 2007 for the assessment year 2005-06.

2. Shri K.E.B. Rengarajan, Junior Standing Counsel represented on behalf of the Revenue and Shri Ajay Vohra, Advocate represented on behalf of the assessee.

3. It was submitted by the learned Junior Standing Counsel that the assessee is in the business of manufacture and sale of cycles and their spare parts. It was the submission that in the course of survey conducted on the premises of the assessee it was noticed that the packing materials and printing & stationery supplied to the assessee as per the specifications of the assessee company and the logo which are not capable of being used by any other person/party, attracted the provisions of section 194C of the Income Tax Act, 1961. It was the submission that the assessee had not deducted TDS and consequently the Assessing Officer had invoked the provisions of sections 201(1) and 201(1A) of the Act and had raised a demand of 5,57,229/- on the assessee. On appeal, the learned CIT(A) allowed the appeal of the assessee on the ground that the assessee had not supplied any raw material to the vendors for the packing material. It was the submission that the learned CIT(A) had held that the ownership in the packing material is passed on to the assessee after receipt of these packing materials by the assessee after being subjected to quality verification as against the purchase orders for the respective quantity placed by the assessee. It was the submission that the Assessing Officer had held that the provisions of sec. 194C did apply to the assessee as the packing materials and stationery were printed with the specifications of the assessee as also the logo of the assessee. It was the submission that as the work done by the vendors was in fact work contract, the provisions of sec. 194C did apply and the assessee was liable to deduct TDS on the payments to the suppliers.

4. In reply, the learned authorised representative drew our attention to the copies of the invoices for the purchase of the packing materials and the printing and stationery, which were found at pages 24 to 37 of the paper book. It was submitted that the excise duty and sales tax had been paid on the said supplies. It was the further submission that the property in the goods being the stationery and the packing materials always remained that of the vendors. It was the submission that the assessee did not provide any of the raw materials to the vendors for doing any printing or manufacturing activity. It was the submission that the vendors themselves purchased the materials and after doing the requisite manufacturing activities as also subjecting the said material to value added actions, sold the same to the assessee. It was the submission that there was no works contract involved and it was only a sale as was evidenced from the invoices and the purchase orders. He further drew our attention to the decisions of the Honourable Delhi High Court in the cases of CIT v. Seagram Manufacturing (P) Ltd., reported in 221 CTR 509, CIT v. Dabur India Ltd., reported in 283 ITR 197 and CIT v. Reebok India Co., reported in 306 ITR 124, wherein the Honourable Delhi High Court had categorically given a finding that the supply of corrugated boxes made with some labels printed on the same was a contract for sale of goods which was outside the purview of section 194C of the Act. It was the further submission that the decision of the Hon’ble Delhi High Court was subject matter of an appeal before the Honourable Supreme Court in S.L.P. No. 18012/ 2009 dated 17-08-2010 in the case of CIT v. Silver Oak Laboratories P. Ltd. wherein the Honourable Supreme Court has held as follows:

“On examining the terms and conditions and also on examination of the invoices, purchase orders as well as the challans indicating payment of excise duty, we are of the view that there is no material on record to indicate that the transaction in question is a “contract for carrying out works”. Hence, Section 194C of the Income Tax Act, 1961, (~Act’ , for short) is not attracted. Our attention, in fact, is invited to the amendment in Section 194C of the Act vide Finance (No.2) Act, 2009, with effect from ₁st October, 2009, which defines ‘work’ to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. In fact, it is clarified that the definition of the word “work’ will not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer. However, this amendment came into force only with effect from 1^st October, 2009, which will not apply to the period in question in the present case(s).

For the aforestated reasons, we find no reasons to interfere with the impugned judgements of the High Court. The special leave petitions are, accordingly, dismissed.”

It was the submission that in the present case a perusal of the invoices clearly showed that excise duty and sales tax have also been paid and consequently the order of the learned CIT(A) holding this transaction as a contract for sale was liable to be upheld.