AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 438
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appellant as an assessee in default for not collecting TCS @ 1 % on the entire sale proceeds made by the appellant firm. 02. Because the CIT(A) has wrongly interpreted the provisions of section 206C and has erred in upholding, that the business of trading in metals, carried on by the appellant firm of purchase and sale of scrap, is covered by the definition of scrap whereby the appellant firm was liable to collect TCS @1 % on the entire sales made. 03. Because the AO as well as the CIT(A) have erred on facts and in law by ignoring the fact that some of the buyers of the appellant firm are manufacturers, from whom Form 27C has been received by the appellant firm, thus, provisions of section 206C(1) of the Income Tax Act, 1961 is not applicable on the appellant firm, hence, the appellant cannot be held an assessee in default as per provisions of section 206C(6) and 206C(6A) of the Income Tax Act, 1961 with respect to the said buyers. 04. Because on a proper interpretation of the provisions of law, it would be found that the order passed by the AO and upheld by the CIT(A) is contrary to facts, bad in law the same be quashed. 2. At the outset, the ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so. The ld. Counsel for the assessee, in this respect, submitted that the decision of the Special Bench of the ITAT Rajkot in the case of 'M/s Bharti Auto Products vs. CIT-II, Rajkot' (supra) was considered by the Hon'ble Gujarat High Court in the case of 'CIT (TDS) vs. M/s Priya Blue Industries Pvt. Ltd.', wherein, the Revenue had specifically taken a ground of appeal, that the Tribunal had wrongly placed reliance upon the case of 'Navine Fluorine International Ltd. vs. ACIT(TDS)' (supra) despite the fact that the Special Bench of the Tribunal in the case of 'M/s Bharti Auto Products' (supra) had held that the words 'waste' and 'scrap' are two different and distinct words. The ld. Counsel for the assessee submitted that the Hon'ble Gujarat High Court, after reproducing the grounds of appeal taken by the Revenue, had dismissed the appeal of the Revenue and, therefore, the decision of the Special Bench of the Tribunal in the case of 'M/s Bharti Auto Products' (supra) is not a good law, as it has been overruled by the Hon'ble Gujarat High Court in the case of 'CIT (TDS) vs. M/s Priya Blue Industries Pvt. Ltd.' (supra). Therefore, it was prayed that the assessee was not li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is not coming out of manufacture, then the items do not fall under the definition of scrap and thus not liable to TCS. The findings of the ITAT Ahmedabad Bench, as contained in paras 12 and 13, are reproduced below: "12. The explanation to section 206 C of the IT Act provides the meaning of scrap means "waste and scrap" from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. In the above definition the important words used in the definition of scrap are "waste and scrap" - "from manufacture" and "which is". The word "waste and scrap" are one item. Thereafter, the word used is "from" the manufacture or mechanical working of material. It would mean that the waste and scrap being one item should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the words waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. Thereafter, the word used is "which is" definitely not usable. The word "is" as used in this defi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bad Bench of ITAT in the case of 'ITO(TDS) vs. Priya Blue Industries Pvt. Ltd.' in ITA No.2207/Ahd/2011, vide order dated 14/5/2015, again relied on the order of the Ahmedbad Bench of the ITAT in the case of 'Navine Fluorine International Ltd. vs. ACIT(TDS)' [supra] and held that the words 'waste' and 'scrap' should have nexus with manufacturing or mechanical working of materials. For the sake of completeness, the findings of the Ahmedbad Bench of the ITAT are reproduced below: "We find that ITAT 'B' Bench, Ahmedabad in ITA Nos. 1213 and 1214/Ahd/2010 dated 15.02.2011 in case of Navine Fluorine International Ltd Vs. ACIT, TDS Circle Surat, for A Y 2009-10 & 2010-11, inter alia held that term "waste and scrap" are one item. The "waste and Scrap" must be from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, ware and to other reasons. It would mean that these waste and scrap being one item should arise from manufacture or mechanical working of material. The words waste and scrap should have nexus with manufacturing or mechanical working of materials. Therefore, the word used is "which is" definitely ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of the amount payable by the buyer to the account of the buyer or at the time of receipt 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 column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax. The nature of goods specified at serial No.(vi) is scrap, and the percentage provided is 1%. The expression of scrap is defined under clause (b) to the Explanation to section 206 of the Act, to mean waste and scrap from manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons. On a plain reading of the said expression, it is evident that any material which is usable as such would not fall within the ambit of the expression "scrap" as envisaged under clause (b) of the Explanation to section 206C of the Act. 8. The Tribunal, in the impugned order, has recorded that the items/products in question obtained from the activity of ship breaking are usable as such and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5/Ahd/2015, following the Hon'ble Gujarat High Court judgment in 'CIT(TDS) vs. M/s Priya Blue Industries Pvt. Ltd.' (supra), held that where the assessee had not generated any scrap in manufacturing activity, as contemplated under the Explanation to section 206C of the Act, and where the assessee was only a trader, having not sold scrap as such, but having sold products which were re-useable and had resulted from ship breaking activity, he was not supposed to collect tax under section 206C of the Act. The relevant portion of the order of the Tribunal reads as follows: "8. A perusal of the paragraph-6 of the above judgment would indicate that certain items generated out of ship breaking activity might be known commercially as "scrap" but they are not waste and scrap. These items are reusable as such, and therefore, would not fall within the definition of "scrap" as envisaged in the Explanation to section 206C(1). The assessee has also contended that it was engaged in the sale of MS pipe, iron which were obtained from ship breaking industries. The assessee himself has not generated any scrap in manufacturing activity, as contemplated in the Explanation. He was a trader. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "(A) Whether the Appellate Tribunal has substantially erred in law in interpreting the term Scrap as defined in clause (b) to Explanation to section 206C of the Income Tax Act by holding that the words 'waste and scrap' is a singular item and not distinct? (B) Whether the Appellate Tribunal has substantially erred in law in placing reliance upon the case of Navin Flourine Chemicals despite the fact that the Hon'ble Special Bench in the case of Bharti Auto Products had held that the words 'waste and scrap' are two different and distinct words? (C) Whether the Appellate Tribunal has substantially erred in deleting the order passed under section 201(1) of the Income Tax Act of Rs. 40,16,418/- and interest charged under section 201(1A) of the Act of Rs. 23,29,522? 12. The question of law at item '(B)' above is the one that is presently under the scanner. This question of law specifically raises the issue as to whether the Tribunal was not incorrect in overlooking 'Bharti Auto Products' (SB) [supra]. The Lordships, in para 8 of the judgment, have unambiguously held that since the Tribunal had remitted the matter to the Assessing Officer after ....