2018 (1) TMI 1554 - AT - Income Tax

Tribunal rules in favor of Assessee, determining ship breaking items as reusable products, exempt from tax.

The Tribunal ruled in favor of the Assessee, holding that the items sold, though commercially termed as scrap, were not waste or scrap but reusable ... TCS @ 1% on sale of alleged scrap - assessee in default within the meaning of Section 206C - A.O. found that the assessee has not submitted proof of filing of Form 27C nor it has obtained the same from the buyers of scrap - HELD THAT:- There is no dispute that the assessee is engaged in the business of trading of scraps obtained from Ship Breaking Yard. In our considered opinion, provisions of Section 206C do not apply in case of scrap generated in the course of ship breaking activity. Items generated out of ship breaking activity might be commercially known as “scrap” since such items are not waste and scrap. Since such items are re-useable. Once such items sold cannot be termed as “scrap” would make the provisions of Section 206C of the Act in applicable. The items sold by the assessee do not fit into the category of scrap as explained in the case of Priya Blue Industries (P.) Ltd. [2015 (11) TMI 1216 - GUJARAT HIGH COURT]. Therefore, in our considered opinion, the assessee cannot be treated as an assessee in default and on the impugned sales cannot be treated as sale of scrap thereby making the assessee out of the purview of Section 206C of the Act. Insofar as the submissions of Form 27C is concerned, the Hon’ble High Court of Gujarat in the case of Siyaram Metal Udyog (P.) Ltd. [2016 (7) TMI 68 - GUJARAT HIGH COURT] has held that “No time limit is provided in section 206C(1A) to make a declaration in Form 27C collected from buyers; mere minor delay in furnishing Form 27C would not make assessee liable for non-collection of TCS”. We do not find any merit in the impugned demand raised by the A.O. - Decided in favour of assessee. Issues:- Whether the Assessee is liable to collect tax at source on the sale of alleged scrap.- Interpretation of the term 'scrap' under Section 206C of the Income Tax Act.- Applicability of Section 206C to items obtained from ship breaking activity.- Validity of the demand raised by the Assessing Officer.Analysis:1. The appeal pertains to the Assessee challenging the order of the Ld. CIT(A) confirming the action of the Assessing Officer in holding the Assessee liable to collect tax at source on the sale of alleged scrap.2. The Assessing Officer observed that the Assessee, engaged in trading scraps from Ship Breaking Yard, did not collect TCS and raised a demand under Section 206C(1) and 206C(7). The Assessee contended that the items sold were not scrap but reusable products from ship breaking activity.3. The Tribunal referred to a Co-ordinate Bench decision stating that items generated from ship breaking activity, though commercially known as scrap, are not waste and scrap, making Section 206C inapplicable. The High Court also emphasized the distinction between waste and scrap, holding that usable items do not fall under the definition of scrap.4. The Tribunal remitted the matter to the Assessing Officer to grant relief under Section 206C(1) only for sales arising from manufacturing activity in ship breaking. The Tribunal's decision was based on factual findings and not a question of law.5. Following the High Court's decision, the Tribunal held that the Assessee's sales did not qualify as scrap, absolving them from Section 206C liability. The Tribunal also cited a High Court ruling regarding Form 27C submissions, stating minor delays do not render the Assessee liable for non-collection of TCS.6. Consequently, the Tribunal set aside the CIT(A)'s findings and directed the Assessing Officer to delete the demand, allowing the Assessee's appeal against the impugned demand raised by the Assessing Officer.