TDS was correctly deducted by Hindustan Lever, rules Orissa HC in challenge by Works Contractor for ‘Wheel’, ‘Surf Excel’ and ‘Domex’ Production

Oriclean Private Limited Vs ACIT (Orissa High Court)

Conclusion: Assessee’s claim that the Hindustan lever had been wrongly deducting tax at source under section 194C, treating the contractual agreement for manufacturing of Hindustan Lever Limited products as “works contract” was not legally tenable since for all purposes the functioning of the applicant in respect of its transaction with Hindustan levercame  under the domain of “works contract” liable for TDS deduction under section 194C.

Held: Assessee-company had entered into a Purchasing Agreement with M/s. Hindustan Unilever Ltd. whose main business was manufacture and sale of detergents, etc. As per the Purchase Agreement, assessee-company would manufacture/ process and package the products in accordance with the specifications and formulations stipulated in the said agreement and using the technology provided by the buyer. Assessee-company shall procure all raw materials and packing materials required for the manufacture of 3 (Three) Detergents, namely ‘Wheel’, ‘Surf Excel’ and ‘Domex’, directly from third party suppliers on Invoices raised on its own name. The Buyer M/s. Hindustan Unilever Ltd, would purchase such Products manufactured, processed and packaged by the Seller, M/s. Oriclean Pvt. Ltd. for a consideration on certain terms and conditions which was mutually agreed upon. From the date of entering into the Purchase Agreement, the dealings between the buyer and seller were continuing smoothly until the Buyer, M/s. Hindustan Unilever Ltd. started deducting TDS (Tax Deducted at Source) @ 2% under section 194 (C) of the Income Tax Act, 1961 on all Sale Invoices of assessee-company with effect from May, 2019. Assessee submitted that the company did not fall within the purview of the definition of ‘Work’, as it procured raw materials along with other packing materials at its own cost from different Suppliers with separate invoices raised on its own name. It procured only one Raw Material from a Unit of the Buyer Company, M/s. Hindustan Unilever Ltd., through a separate tax invoice for the manufacture of one of the three products that it supplied to the Buyer Company in accordance with the ‘Purchase Agreement’. Therefore, the Agreement entered into between assessee-company and M/s. Hindustan Unilever Ltd. was a ‘Contract for Sale’ and not a ‘Works Contract’ as the Scope of work done under the Agreement did not fall within the definition of ‘Work’. Assessee was in no manner liable to pay TDS @2% for the Products manufactured and sold to the Buyer as per the specifications mentioned in the Purchase Agreement. It was held that assessee’s claim that the Hindustan lever had been wrongly deducting tax at source under section 194C, treating the contractual agreement for manufacturing of Hindustan Lever Limited products as “works contract” was not legally tenable since for all purposes the functioning of the applicant in respect of its transaction with Hindustan lever came under the domain of “works contract”. Further, it was also noted that assessee had regularly claimed amount receivable from Hindustan Lever as ‘contractual amount” in F.No.13 filed in earlier Financial Years including Financial Year 2019-20 and even in F. No. 13 filed for the Financial Year 2020-21. Furthermore, assessee did not adduce any documents/correspondences disputing the deduction of tax at source under section 194C of the I.T. Act by the Hindustan Lever Ltd”, the bench observed. Evidently, assessee did not consider such action by Hindustan Lever Limited as “dispute” suitable for agitation with Hindustan Lever Limited, unless the rate of IDS for the Financial Year 2020-21 had been fixed at 1.25%.

FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT

1. Since common question of facts and law are involved in both the Writ Petitions, the same were heard together and are being disposed of by this common judgment. However, this Court felt it apposite to deal the W.P.(C) No.35140 of 2021 as the leading case for proper adjudication of both the cases.

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