Seller's blanket TCS collection from bulk purchasers u/s206C(1) invalid; must respect s.206C(1A)/Rule37C declarations or collect TCS only after verification

Whether a seller may issue a blanket direction to collect TCS under s.206C(1): HC held such blanket directives are impermissible because s.206C(1A) read with Rule 37C prescribes conditions under which collection is not to be made; a seller is not empowered to ignore those statutory stipulations merely on allegations of misdeclaration. Outcome: notices requiring universal TCS from all bulk purchasers for self-use are unlawful insofar as they apply without verification and despite valid Form 27C declarations. If purchasers fail to furnish declarations as per s.206C(1A)/Rule 37C, the seller may then insist on TCS as provided by law.

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Issues: Whether the circular notices issued by the seller (Central Coalfields Limited) requiring collection/deposit of TCS @1% from all coal purchasers are legally sustainable insofar as purchasers who furnish declarations in Form 27C and thereby satisfy the conditions of Section 206C(1A) read with Rule 37C.

Analysis: The statutory scheme under Section 206C(1) prescribes collection of tax at source on sale of specified goods; Section 206C(1A) creates an exception where a buyer resident in India furnishes a prescribed written declaration that the goods will be used for manufacturing/processing/production (or generation of power) and not for trading. Rule 37C prescribes Form No. 27C as the manner and verification for such declaration and requires the seller to forward one copy to the tax authorities. The notices impugned impose a blanket obligation on all purchasers to deposit TCS irrespective of whether they have complied with Section 206C(1A)/Rule 37C. The provisions of Section 206C(1A) and Rule 37C, read together, provide statutory relaxation from TCS where the declaration is duly furnished and verified; denial of that statutory relief requires material justification such as a finding of misdeclaration. Administrative difficulties or suspicion of misuse by some purchasers do not empower the seller to override the statutory exception en masse; the tax authorities may investigate or pursue individual cases of misdeclaration, and the seller may act on specific valid grounds concerning particular buyers.

Conclusion: The blanket circulars issued by the seller requiring deposit/collection of TCS from all purchasers are not sustainable insofar as purchasers who have complied with Section 206C(1A) and Rule 37C by furnishing Form No. 27C; such purchasers are entitled to the statutory exemption and the seller may insist on TCS only where declarations are not furnished or where there is material to justify denial for specific buyers.

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