AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 1234
X X X X Extracts X X X X
X X X X Extracts X X X X
....etween 2016-2017 and 2023-2024 and quash the same. 3. The petitioner has also prayed for interim stay of all further proceedings including recovery and penalty u/s.271CA of the Act pursuant to the Impugned Orders in DIN No: CHE/CT/153/1/30052023/00111 passed under Section 206C/206C (6A)/206C (7) of the Act dated 30.05.2023 for these Assessment years. 4. The impugned orders have been passed by the respondent under Section 206C, Section 206C(6A) and under Section 206C(7) of the Income Tax Act, 1961 seeking to impose tax. Provision Failure 1 Section 206C(1) Not collecting income-tax at the rate of one per cent from the buyer 2 Section 206CC Not furnishing Permanent Account number by 'collectee' 3 Section 206CCA Not furnishing the return of income for the assessment year preceding the financial year in which tax is required to be collected by 'specified person' 5. By the impugned orders dated 30.05.2023, the respondent has treated the petitioner as an "assessee in default" for failure to collect tax at source under Section 206C of the Income Tax Act, 1961 and has thus demanded tax for the aforesaid period in dispute together with inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is explicitly clear that bar contractors who get the benefit of collecting empty bottles are buyers in lieu of rights given to them by the seller, that is, TASMAC. 3.2. Goods of the nature specified in the Table in subsection (1) or the right to receive any such goods. By winning the tender through the bidding process, the bar contractor gets the right, inter alia, to collect and sell the empty bottles. 3.3. Buyer does not include a buyer in the retail sale of such goods purchased by him for personal consumption There is an implicit understanding that empty bottles are sold by the successful bidder and are not used for personal consumption. The successful bidder collects the empty bottles and sells them to certain vendors who ultimately sell them back to the distilleries and breweries. Additionally, the successful bidder gets the inherent right to purchase empty bottles only by way of tendering process and obtains the goods in bulk through such tenders floated by TASMAC. There is therefore, no purchase made by the successful bidder through retail sale. 4 Whether only 1% of the license fee, i.e., the agency commission accrues as the income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income Tax Act, 1961 and whether for the Assessment Years 2022-23 and 2023-24, the petitioner is also liable to pay tax under Section 206CCA of the Income Tax Act, 1961? 12. The petitioner is a company incorporated under the provisions of the Companies Act, 1956 in the year 1981. It is wholly owned by the Government of Tamil Nadu. It is a statutory body which under Section 17-C (1-B) of the Tamil Nadu Prohibition Act, 1937 has been given an exclusive monopoly not only to control and effect wholesale, but also retail sale of Indian Made Foreign Spirits (IMFS) in the entire state of Tamil Nadu. 13. Wholesale and retail business is being carried out by the petitioner since 2003, pursuant to Tamil Nadu Prohibition Amendment Ordinance 08.01.2003 issued under Article 213 of the Constitution of India, pursuant to which Section 17-C (1-A) was inserted in the Tamil Nadu Prohibition Act, 1937. 14. The petitioner has been vested with the special and exclusive privilege of effecting wholesale supply of Indian Made Foreign Spirits in the entire state of Tamil Nadu under Section 17-C(1-A)(a) of the Tamil Nadu Prohibition Act, 1937. 15. Excerpt from S.Jagannathan vs. The Managing Dire....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of liquors. 90. A system was also devised to regulate licensed clubs for sale and consumption of wine for religious purposes in Churches and brandy in Hospital for Medical purposes. Licenses were also given for toddy tapping as it was accepted then. 91. A reading of the pre-amble of the Tamil Nadu Prohibition Act, 1937 makes it clear that the Act is in consonance with the Directive Principle of State Policy under Article 47 of the Constitution of India which enjoins State to endeavour to take steps to bring about a prohibition of intoxicating drinks and drugs which are injurious to health. 92. In 1971-72, prohibition was briefly lifted for the 1st time. The sale of liquor and toddy through shops were thrown open to the public with the enactment of Tamil Nadu Prohibition (Suspension of Operation) Act, 1971. 93. The operation of the provisions of the Tamil Nadu Prohibition Act, 1937 was suspended with the enactment of Tamil Nadu Prohibition (Suspension of Operation) Act, 1971. The prohibition imposed was however short lived. 94. Within three years, the Tamil Nadu Prohibition Act, 1937 was revived with the enactment of Tamil Nadu Prohib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ail shops in order to augment revenue from auctions of retail shops. 103. The then existing Tamil Nadu Liquor (Licence and Permit) Rules, 1981 was later repealed to facilitate the retail vending of IMFL and Beer in Bar. This change in policy was notified before the auction for the year 1992-93 stating only retail vendors will be eligible for Bar licences. 104. By G.O.Ms.No.99, Prohibition and Excise Department, dated 26th May, 1992, the Government of Tamil Nadu introduced the Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 for regulating the issue of licence and the privilege of retail vending of liquor in the Bar. The Rules came into force on 1st June, 1992. 105. Under rule 4(a) of the aforesaid Rules, a person holding a licence granted under Rules 13 of Retail Vending Rules, 1989 was allowed to file an application for grant of privilege and licence for retail vending of liquor in the Bar. These bars are different from the bars attached to the hotels to whom licences are issued under the provisions of the Tamil Nadu Liquor (License & Permit) Rules,1981. 106. In 1993, G.O.Ms.No.44, Prohibition and Excise Department, dated 03.03.1993 was iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e when license and privileges were given to private persons to run wine shops & bars... 128.. In 2003, when Section 17-C (1-B) was introduced from the Tamil Nadu Prohibition Act, 1937 along and Section 22-D to the Tamil Nadu Prohibition Act, 1937, Section 4A was however not amended. As a result of above amendment, retail sale of liquor was also exclusively given to the respondents TASMAC. 129. In 2003, when Respondents TASMAC thus took over the business of retail business in the sale of liquor in the State with the insertion of Section 17-C (1-B), TASMAC became State monopoly. The then existing Tamil Nadu Liquor (Retail Vending) Rules, 1989 and Tamil Nadu Liquor (Retail Vending in Bar) Rules, 2000, were repealed. 16. It was further observed in S. Jagannathan,supra, as follows:- 133. Sub Clause (1-A) and Section 17-C (1-B) of the Tamil Nadu Prohibition Act, 1937 which were inserted in the Act, merely allows TASMAC to do "wholesale" and "retail business", does not permit respondents TASMAC a right to confer privilege to a 3rd parties to render allied business of selling short eats and/ or support service to collect used bottle from premises used as a bar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he owners of premises for the balance area which arebeing used as "Bar" for the consumers to consume the liquor/alcohol purchased from the TASMAC Shops. 141. Instead, the respondents TASMAC has over a period of time encouraged the owners of the leased premises (which some times happens to be the Local and Municipal Authority) to develop the area adjacent to the leased retail shop as "a Bar" for being leased to the licencee's facilitate the buyers of liquor to consume the liquor/Alcohol purchased from the TASMAC Shops. 142. The purported exercise of auctioning rights under the impugned Tender Notifications as explained as having been issued under Rule 9A of the Tamil Nadu Liquor Retail Vending (In Shops and Bars), Rule 2003 cannot be countenanced under Rule 9A. 143. Rule 9A which was inserted to the Rules only in the year 2013 vide G.O.Ms.No.20, Home P & E dated 29.3.2013 reads as under: "Rule 9-A.Grant of Privilege to run the bar:The privilege of running bars may be granted to private parties by tender. The Board of the Corporation may decide the upset price and other terms and conditions of tender, from time to time, with the prior approval ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consumers. Eatables and water are permitted to be sold to these consumers by bar licensees for their safety and convenience. Bar licenses are auctioned by the petitioner under the provisions of Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. 20. For instance, the Board of petitioner vide Circular Resolution No.40/2019 dated 13.09.2019 resolved to approve the following proposals to call for tender under new a formula with effect from 01.10.2019. It reads as follows:- "All the District Managers may be directed to call fresh tender during the month of September 2019 for granting permission to sell eatables and to collect empty bottles in the bars attached to the Retail Vending shops, as per below mentioned terms and conditions. a) The upset prices should be fixed at the rate of 1.80% of average monthly sales of last financial year (2018-19) for the bars attached to the concerned Retail Vending shops located in Corporation & Municipality areas. b) The upset prices should be fixed at the rate of 1.60% of average monthly sales of last financial year (2018-190 for the bars attached to the concerned Retail Vending shops located in Town Pancha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proved by the Commissioner of Prohibition and Excise for granting permission for sale of eatables and collections of empty bottles in the bars that may be continued. 3) The Managing Director, TASMAC in his reference 4th cited has requested the Commissioner of Prohibition and Excise to approve the above New formula fixed by the board of TASMAC conditions, enclosing the copy of Board resolution as approved by the Board." 21. Upset price that is fixed by the petitioner for a person to offer a bid is on a fixed percentage of the retail sales made from the retail outlet. The upset price has varied from 1.4% to 1.80% of the average monthly sales of the previous Financial Year 2018-2019 from the retail vending shops of the petitioner allotted in the Corporation, Municipality or Panchayat areas. The successful bidder was required to pay 1% fee to the petitioner as agency commission and 99% to the Government. 22. Bar licenses are granted to licensees to sell eatables and for collection of empty bottles left by consumers. By the bar license, the bar licensees are entitled to monetise the left over bottles by consumers. Bar license is given as per Rule 9A of the Tamil Nadu Liqu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and collection of empty bottles only. No Child labor should be engaged for this work. Only males who have competed the age of 21 should be employed." 24. The license fee is payable by the bar licensee in proportion with the sale of liquor in the liquor shop to which a particular bar is attached. Bar licensees give two Demand Drafts to the petitioner TASMAC. For the services rendered by the petitioner TASMAC, 1% of the total license fee is retained by the petitioner TASMAC as its service charges (Agency commission) and balance 99% of the license fee is directly paid to the State Government. 25. This 1% of the fee retained is offered to income tax. Thus, there is clear split up of the license fee into 99% in favour of the Government and 1% in its favour as clarified by G.O.Ms.No.20 Home Prohibition and Excise (VI) department dated 29.03.2013. 26. It is submitted by the learned counsel for the petitioner that the Respondent's reasoning and conclusion in the impugned order that the empty bottles left over by the consumers in the bar clearly qualify as scrap arising from mechanical working of materials is incorrect and is as such erroneous. 27.It is submitted that the petiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....manufacture and mechanical working of materials, can give rise to scrap." 32. It is further submitted that it is clear that "mechanical working of materials" signifies physical operations to bring about physical change to which the material is subjected in order to change its shape, properties or structure. 33. It is further submitted by the petitioner that the understanding of the Respondent that the process of opening the bottled liquor is nothing but a mechanical process is absurd and unsustainable in law. 34. It is submitted by the petitioner that the Respondent's reasoning and conclusion in the impugned order that the petitioner TASMAC has satisfied the conditions of a "seller" of scrap to the winning bidders through the process of tendering is erroneous. 35. It is submitted that the Petitioner only sells bottled liquor procured from distilleries and breweries to ultimate customers through its retail shops and that there is no sale of empty bottles by the petitioner to the licensed bar owners. It is further submitted that the price of bottles is included in the sale price of the liquor and on the total price of bottled liquor. VAT (Value Added Tax) is paid and ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'a right to receive specified goods'". 40. It is submitted that the successful bidders of contract for running the bars can by no stretch of imagination be treated as "buyers" of scrap (empty bottles) from "seller" TASMAC and that the Respondent's understanding/interpretation of the term "buyer" is unsustainable in law. 41. It is submitted by the petitioner that the Respondent's reasoning and conclusion in the impugned order that TCS need to be collected on the entire 100% of tender amounts at the time of receipt of such amounts is erroneous. 42. It is submitted that the Petitioner was solely collecting the license fee from bar contractors/licensees for the license by granting them permission to run the bars and passing it on to State Government of Tamil Nadu and that the amounts collected were not liable to service tax as it was only a devolution of the sovereign rights vested in it by the State. 43. It is further submitted that once the petitioner has paid Service Tax on the 1% of the Agency Commission, the same can be in no stretch of imagination or logic treated as sale consideration for empty bottles. 44. It is submitted by the respondent that TASMAC calls for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omers and that the category of product is categorised as "Scrap/Disposables". 51. The learned counsels for the respondent submitted that as per the case of M/s.Bharti Auto Products v CIT, supra, since TASMAC itself has declared the empty bottles as scrap in the tender notice available in the public domain, it is bound by that declaration. 52.The counsel for the respondents also submitted that Navine Fluorine International Ltd. vs. ACIT, supra, is not applicable in this case because it is highlighted that there is a mechanical working when the liquor bottle is opened. 53.It is further submitted that the case of CIT vs. Priya Blue Industries Pvt. Ltd, supra,is not applicable to the present case under discussion since the scraps in question were usable items and thus do not fall within the purview of Section 206C. 54. It is submitted by the learned counsel for the respondent that there is no condition stipulated in the G.O. dated 29.03.2013 directing TASMAC to collect 99% of license fee favouring the State Government separately and, therefore, it is the responsibility of TASMAC only to collect the entire tender amount and remit the same to the government. It is further sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....referred to in that section 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, a sum equal to twenty per cent. of such amount as income-tax on income comprised therein. (1) The power to recover tax by collection under sub-section (1) shall be without prejudice to any other mode of recovery. (2) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs. (3) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (4) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receip....
X X X X Extracts X X X X
X X X X Extracts X X X X
....regard to the smallness of the amount involved in such sales, the nature of the goods or other factors, by notification in the Official Gazette, specify. (8) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1). Explanation. -For the purposes of this section, "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. 60. CBDT (Central Board of Direct Taxes) Circular No. 525, dated 24.11.1998 had clarified the object of Section 206C of the Income Tax Act, 1961. It reads as under:- Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Department's experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of them or their members after the contract has been executed. Persons have also been found to have take....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Two and one-half per cent timber or tendu leaves (vi) Scrap One per cent (vii) Minerals, being coal or lignite or iron ore One per cent (2)... (3)... (4)...(5)...(6)... (7) Without prejudice to the provisions of subsection (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3): Provided that in case any person responsible for collecting tax in accordance with the provisions of this section, fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee but is not deemed to be an assessee in default under the first proviso of sub-section (6A),....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, 1961 reads as under:- [(1) Every person, being a seller shall, at the time of debiting 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: 67. Under Sub-Section (7) to Section 206C of the Income Tax Act, 1961, where a person responsible for collecting tax fails to collect it in accordance with Section 206C(1) of the Income Tax Act, 1961, shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of Sub Section (3). 68. As per Sub-Section (3) to Section 206C of the Income Tax Act, 1961, any person collecting any amount under this Section shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs. Provided that the person collecting tax on or after the 1st day of April, 2005 in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, 1961. 72. Section 206CCA of the Income Tax Act, 1961 was incorporated in the year 2021 vide Finance Act, 2021, w.e.f. 1.7.2021.Section 206CCA of the Income Tax Act, 1961 reads as under:- 206CCA. Special provision for collection of tax at source for non-filers of income-tax return.- (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person from a specified person, the tax shall be collected at the higher of the following two rates, namely:- (i) at twice the rate specified in the relevant provision of the Act; or (ii)at the rate of five per cent: [Provided that the rate of tax collection at source under this section shall not exceed twenty per cent.] (2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC. (3) For the purposes of this section "specified person" means a person who has not furnished the retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld mean 'Waste' and 'Scrap from Manufacture' or 'Mechanical Working of Material'. The definition is furnished qualified. Such waste is definitely not usable as such because of breakage, cutting up, wear and other reasons. It has to take within its meaning those activities which will amount to manufacture under Section 2(f) of the Central Excise Act, 1944, r/w relevant Chapter notes. 78. Section 2(29BA) of the Income Tax Act, 1961, defined the expression " manufacture as follows:- [(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;] 79. The expression "mechanical working of materials" in the definition of " scrap" in clause to explanation (b) to Section 206(c) has not been defined separately. 80. The Hon'ble Supreme Court had an occasion to deal with a simila....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rap". Waste arising from the process of rubberising a stainless steel wire is not a rubber waste or rubber scrap. 10. The product taken out of defective tyre remains the same as what was available earlier. Thus, if the earlier product, waste or scrap of metal, this waste or scrap does not become anything else merely because it is taken out of a rubber tyre. That it remains waste and scrap of metal is clearly indicated by its composition which was noted by the Collector (Appeals). Unfortunately, the Tribunal did not take this aspect into account. In our view, the decision of the Tribunal cannot be upheld. The Collector (Appeals) had applied the correct principles and had correctly classified the product. 11. Accordingly, the impugned Judgment is set aside and that of the Collector (Appeals) is restored. The Appeals stand disposed of accordingly. There will be no order as to costs." 81. In Grasim Industries Limited Vs. Union of India, [2011] 10 SCC 653, the Hon'ble Supreme Court was concerned with MS scrap and iron scrap generated in a workshop. The court held that Section Note 8(a) to Section XV of the Central Excise Tariff Act, 1985 has a very limited purpose o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the word "mechanical" by itself does not help in resolving the legal issue in this case. Therefore, other rules of interpretation have to be looked for and applied. 90. In Maxwell on the Interpretation of Statutes(12th Edition) at page 289, the doctrine of nocitur a sociis has been explained as follows:- "Where two or more words which are susceptible of analogous meaning are coupled together,nocitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general." 91. In Prabhudas Damodar Kotecha v. Manhabala Jeram Damodar, (2013)15 SCC 358, the Hon'ble Supreme Court held that the principle of nocitur a sociis, provides that words and expression must take colour from words with which they are associated. 92. In absence of definition for the expression "mechanical working of materials" in Section 206C of the Income Tax Act, 1961, the above doctrine of nocitur a sociis can be usefully applied to the facts of the case to resolve the legal conundrum. Court is faced with. 93. The meaning of the expression "mechanic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Tasmac Shops of the petitioner which have a licensed premises (Bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. 101. Further, no waste or scrap was generated by the petitioner for it to be sold by the petitioner. Scrap, if any, was generated at the licensed premises which was leased by the licensees from the provide owners of the premises. 102. That apart, left over bottles after consumption are not owned by the petitioner. Neither the petitioner nor the licensee are the owner of the waste bottles. What the respective bar licensees are permitted under the terms of the license under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 is merely to sell food and water and clear the left over bottles more from the point of view of ensuring cleanliness. The bar owners incidentally monetize the left over boittles. 103. Rule 9(a) of the Tamil Nadu Liquor Retail Vending (In Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither "Scrap" nor a property o....