Assessee wins TDS dispute on scrap sales under section 206C(6) due to statutory definition requirements

ITAT Ahmedabad ruled in favor of the assessee regarding TDS obligations under section 206C(6) on scrap sales. The tribunal held that the statutory definition of "scrap" requires waste materials to arise from manufacture or mechanical working of materials. Since the assessee's scrap items (from fluorine and refrigerated gas manufacturing) could not be used in manufacturing gases or mechanical working of gas materials, they fell outside the statutory definition. The CIT(A)'s findings were based on mere presumption. The tribunal allowed the appeal, ruling no TDS deduction was required and no interest under section 206C(7) was applicable.

---

---

Issues: Whether the materials sold by the assessee qualify as "scrap" within the meaning of Explanation (b) to Section 206C of the Income-tax Act, 1961 so as to attract liability to collect tax at source under Section 206C(6) and interest under Section 206C(7).

Analysis: The statutory scheme imposes TCS on goods of the nature specified in the Table to Section 206C; "scrap" is defined in Explanation (b) as "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 definition requires that the item described as "waste and scrap" must arise from manufacture or mechanical working of materials and be definitely not usable as such. The words "waste and scrap" are to be read together and must have a nexus with manufacturing or mechanical working. Mere sale of discarded items without showing they arise from manufacture or mechanical working of the assessee's product does not satisfy the statutory definition. The authorities below treated the entire list of sold items as generated from the assessee's manufacturing activity without material evidence of such nexus; no Form No. 27C declarations were produced but absence of declarations alone does not establish that the items fall within Explanation (b).

Conclusion: The materials sold do not fall within the meaning of "scrap" in Explanation (b) to Section 206C; therefore the assessee was not liable to collect tax at source under Section 206C(6) and not liable for interest under Section 206C(7). The appeals are allowed in favour of the assessee.

---