TaxTMI 
TaxTMI 
2015 (7) TMI 1028
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....ny mode other than under a forest lease' given at serial No. iii of the Table under s. 206C, which according to the petitioners, has to be read and understood as to the procurement of timber from the 'Indian soil' and not from abroad. 2. Before dealing with the provisions of law, the factual matrix reveals that, all the petitioners are timber merchants, mainly importing timber from other countries and are selling them mostly to registered dealers in Kerala and outside the State. Admittedly, they were not collecting any 'tax at source' in terms of s. 206C from the purchasers/dealers, to whom the imported timber was sold. While so, the Department conducted a survey under s. 133A of the 'Act' at the business premises of the petitioners. It was observed that the petitioners had failed to collect 'tax at source' under s. 206C(1) of the Act in respect of the sales of timber made during the financial years from 2009-10 till date. This led to Ext. PI show-cause notice issued to the petitioners asking them to explain : (i) why the petitioners should not be treated as an assessee-in-default' under s. 206C(6); (ii) why interes....
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....) and 2(C) respectively. 5. Heard Sri Arshad Hidayathullah, the learned senior counsel on the side of the petitioners and Sri P.K Ravindranatha Menon, the learned senior Central Government counsel (Taxes) appearing on behalf of the respondents. 6. The main point raised by the learned senior counsel for the petitioners is that, scope of s. 206C has to be read and understood in the light of the circumstances under which s. 44AC was brought in. Apart from referring to the factual scenario as discernible from the decision rendered by this Court in P. Kunhammed Kuttu Haji v. Union of India [1989] 176 ITR 481, reliance is also sought to be placed on the relevant 'Budget speech'. The learned counsel submits that, though validity of the statutory provision has been upheld by the apex Court as per the decision rendered in Union of India v. A. Sanyasi Rao [1996] 219 ITR 330, the scope of applicability of s. 206C to the transactions like that of the petitioners, who procure timber by way of import from abroad, effecting the subsequent sale (which according to them will not come within the purview of s. 206C of the Act), was never considered by the apex Court in the s....
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....re very much identifiable and their transactions are quite transparent. It is stated that, most of the sales effected by the petitioners were to the registered dealers. The transactions are covered by bills of entry, documents regarding satisfaction of customs duty, lorry receipts, transit pass etc., and as such, they do not belong to the category of "fly by .night operators" as described by this Court in P. Kunhammed Kutty Haji (supra). The learned counsel also points out that the petitioners are not in a position now, to recover tax from the customers to whom the goods were sold during the concerned assessment years. The sales having been effected to registered dealers, they would have satisfied the tax payable and if there is any failure, it is open for the Department to proceed against them. Since the timber that came to the hands of the petitioners was not from the Indian forests/Indian soil and since there is no reason to doubt the identity of the transaction, the petitioners do not come within the purview of s. 206C, submits the learned counsel. As the 'presumptive tax' is being imposed to remedy the mischief of large scale evasion of tax in the aforesaid circumstanc....
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....of s. 44AC, so as to meet timely requirements, depending upon the policy and desire of the Government/law makers. This conscious exercise very much sustains the provision and the petitioners do come within its reach/ambit. The source from where timber is procured by the petitioners is not a matter of concern, as significance is with reference to the 'product/commodity', which is nothing other than 'timber'. It is only by virtue of the 'evasion-prone' nature of the commodity, that 'timber' is also included as one of such items, based on the legislative wisdom of the law makers, under s. 44AC as well as s. 206C, along with such other specified items. It is accordingly, that 'advance tax' is stipulated in respect of 'imported timber' as well, by virtue of the mandate under the local laws, particularly, s. 47(16A) of the Kerala Value Added Tax Act. 10. The learned senior Central Government counsel makes a reference to various other provisions under the IT Act, such as ss. 194LA, 194-IA etc., as to the mandate to collect/deduct tax at source, in connection with land acquisition, payment of rent to the landlords, payments on work c....
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....or his agent (hereafter in this section referred to as 'the seller's),- (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head 'Profits and gains of business or profession' : Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is, fixed by or under any State Act;" The following Explanation is being inserted by the Finance Act, 1990, w.e.f. 1st April, 1991 : "Explanation.-For the purpose of this clause, purchase price' means any amount (by whatever name called) paid or payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in any auction, or as the case may be, the highest accepted offer in case of....
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....pt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in col. (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in col. (3) of the said Table, of such amount as income-tax on income comprised therein : Sl. No. Nature of goods Percentage (1) (2) (3) (i) Alcoholic liquor for human consumption (other than Indian-made foreign liquor) Fifteen per cent (ii) Timber obtained under a forest lease Fifteen per cent (iii) Timber obtained by any mode other than under a forest lease Five percent (iv) Any other forest produce not being timber Fifteen per cent Provided that where the AO, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilized for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force....
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.... referred to in sub-s. (7) shall be a charge upon all the assets of the seller." 13. Explanation to s. 206C has been inserted by the Finance Act, 1992 ,f. 1st April, 1992 as given below : ''Explanation.--For the purposes of this section,- (a) 'buyer' means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-s. (1) or the right to receive any such goods but does not include,- (i) a public sector company, (ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or (iii) a buyer where the goods are not obtained by him by Way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act; (b) 'seller' means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society." Subsequently, as per the Finance Act, 2003, cls. (a)(i) and (a)(ii) mentioned above came to be substituted w.e.f. 1st June, 1993 in the following terms : "10. Clauses (a)(i) and a(ii) ha....
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....d such other tactics being deployed by traders dealing with the particular/specified commodities like 'liquor', 'timber' obtained under forest lease etc. The object of the enactment, as explained in the Budget Speech by the concerned Minister, highlights the factual scenario and the difficulty felt by the Revenue in tracing out the concerned traders, to fix the quantum and to effect recovery, mainly for the reason that, they were mostly having bogus identity or were not traceable for other reasons. That situation may not be applicable to the case of the petitioners, who are having import licence, to import timber from abroad. The commodity/timber, after import, is sold to the dealers and is taken to their premises, after processing at different stages and supported by documents at different levels. Apart from the relevant invoices issued in the name of the importer, there will be bills of entry, documents regarding the satisfaction of customs duty, receipts regarding satisfaction of advance tax under the local statute, lorry receipts, transit passes etc. It is true, that the petitioners stand on a different footing with proper identity and there may be transparency ....
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....s. 206C clubbing along with several other items including 'tendu leaves' and 'scrap' for collection of tax at source. In other words, the law makers had independent application of mind with regard to the items, which were to be included under s. 206C, in respect of which tax had to be collected at source at the specified rate, which includes 'timber' as well. This being the position, the contention of the petitioners that the circumstance under which s. 44AC was incorporated and the consequence in furtherance to deletion of the said provision w.e.f 1st April, 1992 is having a bearing with regard to the exigibility of tax to the very same item mentioned in the Table under 206C, is having no merit or significance. 20. It is also pertinent to note that after deletion of s. 44AC from the statute book w.e.f. 1st April, 1992, there were several amendments to s. 206C as extracted hereinbefore. The scope of the said provision was widened and this is pursuant to conscious decisions taken by the law makers at different points of time. As made clear by the apex Court, s. 44AC is only an adjunct and Explanatory to s. 206C. Sec. 44AG does not levy any charge, as there....
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....d on the basis of transparent transaction. This Court finds it difficult to accept the proposition for more reasons than one. 22. At the outset, it is to be noted that the provision does not draw any 'distinction between 'timber grown in india' (whether in forest or elsewhere) and the 'timber imported' from abroad. The object of the statute is important to be noted; to ascertain the scope of the provision. Procurement of revenue is of paramount importance and the statute, to the best possible extent takes care of the different situations, where there is a chance to evade payment of tax suppressing such income. It is in the said circumstance, that 'evasion-prone' items have been identified and appropriate extent of collection of tax has been stipulated to be finalized in the due course, after verification of accounts of the buyers/traders concerned. It is known to everybody that 'Timber' is not such an item, transportation of which could be easily concealed. But the Department has come across several ways and means carved out by line traders in the field, to effect deals and evade tax through such dubious means. In such situation, commodity-wis....
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....s. 206C and the final liability has to be worked out in the course of regular assessment. In other words, it is only as an 'interim measure', as akin to 'advance tax' payable under the local Statute and to safeguard the interest of the Revenue. The scheme of the Statute was explained by the apex Court, when constitutional validity of the Act was upheld as per the decision in A. Sanyaasi Rao's case (supra), also referring to the mandate of s. 9 of the IT Act and placing reliance on the earlier decision rendered by the apex Court in Anglo French Textile Co. Ltd. v. CTT [1953] 23 ITR 101 . The Court held that, there was no doubt even at the time of purchase, that income was said to have been accrued, to attract imposition of tax. Considering the factual position involved, though the 'timber' was imported from abroad, after clearance from the Customs Department paying the customs duty, when sale is effected by the petitioners (sellers) to the concerned registered dealers or others (buyers), income can be said to have been accrued at the time of purchase to attract imposition of tax on the 'buyer'. For clarity and convenience, rate of tax to be collec....
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....not to place any financial burden upon the sellers, unless the sellers infringe the obligation cast upon them. Any how, during the course of hearing, the learned senior counsel for the petitioners fairly submitted that the above contention, that the petitioners happen to be the 'second sellers', is not pressed much and as such, this Court does not find it necessary to deal with it any further. 26. The learned counsel for the petitioners made a reference to the decision rendered by the apex Court in Rainbow Steels Ltd., v. CST [1981] 2 SCC 141 (paras 4 and 6), as to how construction of the words "any other mode" has to be made, to understand the scheme of the statute and as to the effect of s. 206C. According to the learned counsel, it has to be with reference to the factual scenario as existed at the time of introduction, when the provision prescribing for reckoning a portion of the purchase price as 'presumptive income' was brought into, by way of incorporation of s. 44AC of the IT Act, the difficulties experienced by the Revenue to identify persons engaged in the trade of specified Commodities (timber obtained by way of forest lease, forest produce, timber obta....