TaxTMI 
TaxTMI 
2024 (7) TMI 773
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....case. ITA No. 20/Jodh/2022 3. The assessee has raised the following grounds which are as under: "1] That on the facts & in the circumstances of the case, the order passed by the Id CIT (A) is bad in law and bad in facts and also against the principle of natural justice. 2] That on the facts & in the circumstances of the case the Id CIT (A) grosslyerred in holding the assessee "as assessee in default" and sustaining the demand of Rs. 1336475/- u/s 206C(6) & 206C(7). 3] That on the facts & in the circumstances of the case the Id CIT(A) erred inholding that the entire sales made by the assessee is covered u/s 206C of theAct. 4] That on the facts & in the circumstances of the case the Id CIT(A) erred in confirming the action of the AO in respect of fastened the liability on the assessee u/s 206C of the Act. 5] That on the facts & in the circumstances of the case the Id CIT (A) ought to have quashed the order of the AO passed under section 206C(6A) and 206C(7) of the Act. 6] That on the facts & in the circumstances of the case the Id CIT (A) ought to have issuing the direction not to treat the assessee in default for non collec....
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....erial which is usable as such would not fall within the ambit of the expression "scrap" as envisaged under cl. (b) of the Explanation to s. 206 C . But it is also correct that the assessee is a trader, and for which such material purchased by him is a trading goods, and whatever goods have been purchased by him is ultimately sold. This is a goods purchased by him and sold to various parties. In this definition, the important words used in the definition of scrap are "waste and scrap", "from manufacture" and "which is". The words "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 "waste and scrap" together which are generated out of manufacturing process of the assessee. The word "waste and scrap" should have nexus with the manufacturing or mechanical working of material. Thereafter, the words used are "which is" definitely not usable The word "is" as used in this definition of the scrap is meant for singular item i.e., "waste and scrap". The words "which is" ....
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....f the rule. Accordingly, the entire addition should be deleted. 7. The ld. DR vehemently argued and relied on the order of the revenue authorities. The ld. DR invited our attention in appeal order para 7 which is reproduced as below: "7. The appellant has placed reliance on the decision of ITAT Ahemdabad in the case of Navine Flourine International Ltd. v ACIT 14 ITR (Trib) 481 (Ahd) for the contention that where a trader sells scrap he is not liable to collect tax at source as it is not scrap but stock in trade for him. However, special bench of the Hon'ble ITAT, Rajkot in the case of Bharti Auto Products Vs. CIT 157 TTJ 0001 (Rajkot)(SB) has decided the issue in favour of the department and held that Section 206C fastens liability on a seller of scrap for collection of tax at source, however, there is no requirement that such a seller should himself generate scrap from manufacture or mechanical working of materials undertaken by him and therefore even the trader of scrap is liable to make TCS. The facts of this case were that the assessee imported brass scrap arid sold it without collecting tax at source, the assessee's case was that the brass scrap sold by hi....
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....; is used again in the expression 'scrap from the manufacture or mechanical working of materials'. The said definition is in two parts. Its first part, i.e., 'waste and scrap from the manufacture or mechanical working of materials', refers to what would constitute 'scrap' while its second part, namely, 'which is definitely not usable as such because of breakage, cutting up, wear and other reasons' refers to the characteristics which a material has to possess in order to fall in the category of 'scrap'. The second part of definition, being integral part of the definition, also throws light on the scope and ambit of the term 'scrap' and, therefore, needs to be taken into consideration while interpreting the first part of the definition of 'scrap'. [Para 24] The first part of the definition, namely, 'waste and scrap from the manufacture or mechanical working of materials' seeks to cover both 'waste' as well as 'scrap from the manufacture or mechanical working of materials'. In the absence of any definition of the term 'waste' in the Act, one has to turn to its me....
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....aterials, can give rise to scrap. Any article or thing arising from the physical operations on materials which is not usable as such would therefore fall in the category of 'scrap'. As stated earlier, the second part of the definition, i.e., 'which is definitely not usable as such because of breakage, cutting up, wear and other reasons' also throws light on the scope of the term 'scrap' in as much as it seeks to define the characteristics of scrap. In order to constitute 'scrap', the article or thing must not be usable as such because of breakage, cutting up, wear and other reasons. The use of the words "other reasons" in the second part of the definition of 'scrap' is significant. In order to constitute 'scrap', what is contemplated by Explanation (b) is the non-usability of materials as such, which could even be for a reason other than breakage, cutting up and wear. The phraseology employed in Explanation (b) shows that the term 'scrap' has been defined in wide terms so as to include both (i) waste, and (ii) scrap from the manufacture or mechanical working of materials. However, both of them have b....
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....there is no requirement that the goods to be eligible for scrap should be produced/manufactured by the seller itself. Further the term buyer is also defined in the same Explanation and means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the specified nature. Thus a buyer is not restricted to a person who buys the specified goods in an auction or tender and thus includes a buyer in the retail sale of specified goods as well. As per Taxation Laws (Amendment) Act 2003, w.e f. 08-09-2003, if a buyer in the retail sale of such goods buys it for personal consumption and furnishes before the seller such declaration in prescribed Form 27C, then the Seller is not liable to collect tax on the same. Thus all Sellers of Scrap, within the meaning of Section 206C, including those trading in scrap are liable to collect tax at source from the buyers of such scrap. However if the buyer declares by furnishing Form 27C before the seller its purpose for obtaining such goods being manufacturing/processing/producing articles and not trading purpose then the seller is exempted from collecting such tax from such buyer. It may be added th....
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....h tax at source." Considering the legal provisions and authoritative judicial precedents as discussed above, I find no force in the contention of the appellant that he being a trader, the provisions of Section 206C of the Act are not applicable to him. Section 206C of the Income-tax Act fastens liability on a seller of scrap for collection of tax at source, there is no requirement that such a seller should himself generate scrap from the manufacture or mechanical working of materials undertaken by him. Taking a holistic view of the legal provisions and definitions given therein, it is held that the assessee was required to collect TCS on sale of scrap made by him and as he failed to do so, the AO was perfectly justified in treating him as "assessee in default" in respect of the tax which he failed to collect from buyers and interest thereon. Considering the factual & legal position as discussed in preceding paras, it is held that the appellant failed to comply with the provisions of Section 206C of the Act and therefore is liable for tax & interest u/s 206C(6) and 206C(7) of the Act. The AO has rightly created demands on account of tax and interest at Rs. 7,50,404....
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.... the Act. The ld. DR has drawn our attention in relevant paragraph of the order of ITAT- Jaipur which are reproduced as below: - "6. We have considered the written submissions as submitted by the assessee and arguments of ld. DR. We have also carefully perused the order passed U/s 206C(6A)/(7) of the IT Act. There is no dispute that the assessee purchased scrap material from the railways which was subjected to TCS and the said material was again sold by the assessee to various parties who were stated to be traders as well as consumers of the scraped without collecting the tax at source by the assessee. Therefore, the AO initiated the proceedings for holding the assessee in default U/s 206C(6A)/(7) of the Act. The First contention of the assessee is that the material sold by the assessee which was purchased from the railways in the auction does not fall in the definition of scrapas provided in clause (b) of Section 206C of the Act. For ready reference we quote clause (b) of explanation to Section 206C as under:- ""scrap" means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear ....