No TCS if Buyer declaration obtained for goods to be used for manufacturing : ITAT

ORDER

Rajpal Yadav, Judicial Member. – Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-8, Ahmedabad dated 19.6.2017 passed for the Asstt.Year 2014-15.

2. Revenue has taken five grounds of appeal, but its grievance revolves around a single issue viz. the ld.CIT(A) has erred in deleting the demand of Rs.37,47,061/- under section 206C(1) and Rs.10,18,010/-under section 206C(7) of the Income Tax Act, 1961. In other words, the grievance of the Revenue is that the assessee was required to collect tax at source while selling scrap. Since it failed to collect such taxes on sale of Rs.37,46,06,052/- a demand under section 206C along with interest deserves to be raised against the assessee. The AO has raised such demand which has been quashed by the ld.CIT(A).

3. With the assistance of the ld.representatives, we have gone through the record carefully. The assessee at the relevant time was engaged in the business of ship breaking. A survey under section 133A of the Act was carried out at the business of premises of the assessee-company on 17.9.2013. According to the AO, the assessee was required to collect taxes on the sale of scrap at the rate of 1% from the buyer at the time of sale as per section 206 of the Act. According to him, the assessee failed to collect such taxes, and therefore, he raised a demand under section 206C(6A) r.w.s 206C(7) and 206C(7) of the Income Tax Act. Dissatisfied with the demand, the assessee carried the matter in appeal before the ldCIT(A). It has raised two fold submissions. In the first fold of contention, it submitted that the sales made by the assessee were not considered as scrap material, rather these were identifiable useful products, which have been extracted from the ship. On those sales, the assessee was not required to collect tax. It relied upon the decision of Hon’ble Gujarat High Court in the case of CIT v. Priya Blue Industries Ltd. [2016]  381 ITR 210 (Guj).

In the second fold of contentions, it was submitted that section 206C(1A) mandates that any person responsible for collecting taxes under section 206C(1) was not required to collect such taxes if a buyer who is resident in India and such buyer furnishes to the person responsible for collecting taxes a declaration in writing that such material will be utilized for the purpose of manufacturing process or producing article or things and it will not be used for trading purposes. Thus, on the strength of this clause, the assessee has submitted before the ld.CIT(A) that it has submitted required details in Form no.27BA/27C. The ld.CIT(A) accepted both fold of contentions and deleted the demand.

4. For adjudication of this issue, we deem it pertinent to take note of section 206C(1A) of the Act, which reads as under:

(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.”

5. A perusal of the above would indicate that it mandates any person responsible for collecting taxes under section 206(1) need not to do so if he obtains a declaration from the buyer that he is purchasing the goods for re-use in manufacturing process or producing article or things. It does not say that such declaration has to be obtained at the very same moment when sale is effected. In the present case, the assessee has submitted declaration before the AO in requisite forms. The ld.First Appellate Authority has appreciated this aspect and the finding recorded by the ld.CIT(A) reads as under:

‘5.5 The appellant has also argued that as the buyers of such goods have furnished declaration that the goods shall be used for the purpose of manufacturing/processing/producing articles or things and not for trading and they have given a declaration u/s.206C(IA) of the I. T. Act, 1961 & therefore, the provisions of Sec.206C are not applicable in respect of items sold to them. I have gone through the contents of the paper book filed by the appellant and also the remand report obtained during the course of the appellate proceedings. The appellant has submitted that the buyers of such goods have furnished declaration that the goods shall be used for the purpose of manufacturing/processing/producing articles or things and not for trading and they have given a declaration u/s,206CC(IA) of the I. T. Act, 1961 & therefore, the provisions of Sec.206C are not applicable in respect of items sold to them. If the appellant has received declarations in form no. 27C/27BA, he is clearly under no obligation to collect tax at source and to pay the same to the credit of government. The AO has raised the objection in his order as to whether at the time of collecting the sale receipt from the scrap sales made whether the declaration in Form 27C/27BA were available with the appellant or not.

As mentioned by the AR of the appellant above, this issue is directly covered by the ratio of the judgment of Hon’ble Gujarat High Court in the case of CIT v. Valibhai Khanbhai Mankad, as reported at (2013) 216 Taxman 18. After considering all details provided by the appellant and the judicial pronouncements on the subject, it is noticed that the Form 27C produced by the appellant may be considered and the assessee may not be treated as ‘assessee-in-default’ for non collection of TCS from the manufacturer buyers. In the case of Karnataka Forest Development Corpn. Ltd. v. Income-tax Officer, TDS Ward, Davangere IT Appeal Nos. 1144 to 1146 (Bang.) of 2014 [AY 2009-10 to 2011-12] dated April 17, 2015, Hon’ble ITAT Bangalore Bench ‘C’ decided on the similar issue as under;

” Section 206C(1A) mandates that any person responsible for collecting tax under section 206C(1) need not do so if he obtains a declaration from the buyer that he is purchasing the goods for use in manufacturing, processing or producing articles or things. It does not say that such declaration has to be obtained at the very same moment when a sale is affected………”

Recently, Hon’ble High Court of Gujarat in tax appeal No. 519 of 2016 Tax Appeal No.526 of 2016 Commissioner of Income Tax (TDS)….AppelIant(s) Versus Siyaram Metal Udyog Pvt Ltd….Opponent(s) in its order dated 27/06/2016 concluded as under:

” …………. if the buyer furnishes to the person responsible for the tax a declaration in writing in prescribed form declaring that the goods in question are to b e utilized for the purposes of manufacturing processor producing articles or things or for the purpose of generation of power and not for trading purposes. The declaration to be made in subsection (IA) of section 206C thus would enable the Revenue authorities to, as and when the need so arises make proper verifications. This subsection itself does not provide for any time limit within which such declaration is to be made ……… ”

After considering all the facts of the case and the judicial pronouncement by the Higher Authorities including jurisdictional High Court of Gujarat, it is concluded that there is no dispute that the delay in filing such forms with the office of the Department [cannot revive the liability of collection of tax at source with retrospective effect and the 27C produced by the appellant may be considered.

6. In his order itself , the ITO TDS-1 himself has pointed out the judgment of special Bench of IT AT in the case of Bharti Auto Products which refers to the amendments in law permitting filing of Form No.27BA/ 27C is to be treated as retrospective in nature. He further has acknowledged the fact that since the details furnished in this forms prove about the due taxes having already been paid by the respective buyers the same will also be covered by the ratio of the judgment of the Hon’ble Supreme Court in the case of Hindustan Cocacola Beverage Ltd. (2007) 293 ITR 226. As the appellant has submitted Form 27C/27BA from the parties in question, the default computed by the AO is to be deleted. In view of above discussion, it is noticed that there is no violation of the provisions of section 206C of the Act in view of either the sale of specified products being that of non-excisable, non-scrap products, or the same being against receipt of declarations in prescribed form number 27C/27BA. The AO is directed to delete the demand raised based on the default due to non availability of Form 27C at the time of assessment. Accordingly, the appeal is allowed.’

6. On due consideration of the facts and findings, we are of the view that the ld.CIT(A) has appreciated the facts in right perspective and rightly held that the assessee was not required to collect taxes at sources when sales were made as required under section 206C. We do not find any error in the order of the ld.CIT(A), hence, appeal of the Revenue is devoid of any merit. It is rejected.

7. In the result, appeal of the Revenue is dismissed.

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