Section 206C: A seller of scrap is liable for collection of tax at source irrespective of the fact that such a seller has not himself generated scrap from manufacture or mechanical working of materials undertaken by him. The mode of sale of scrap need not be necessarily akin to the auction or tender for this purpose but it can be any mode.
Section 206C(6A): First proviso inserted by the Finance Act, 2013 with effect from 01-07-2012, would apply retrospectively.
Facts:
The assessee imported brass scrap and sold it without collecting tax at source. The assessee’s case was that the brass scrap sold by him was not generated from the manufacture or mechanical working of material and therefore, it was not ‘scrap’ within the meaning of Explanation (b) to section 206C. According to him, the provisions of section 206C would be attracted only when scrap was sold to a “buyer”, which is defined as a person who obtains in any sale, by way of auction, tender or any other mode, goods of specified nature. It was submitted that sale of goods by an assessee to a buyer in retail sale of such goods cannot therefore be construed as sale to a buyer as such sale was not by way of auction or tender or any other like mode and therefore such transactions in retail sale between the assessee and his buyer would clearly be outside the scope of section 206C.
The Assessing Officer rejected the assessee’s explanation. He held that since the assessee had failed to collect the tax at source as required by section 206C(6) on the sale of scrap made by him to various dealers, he was liable to pay it u/s. 206C(6) alongwith interest u/s. 206C(7).
Held:
The isues in this case are
a) Is it necessary that the scrap should have been generated by the assessee himself from the manufacture or mechanical working of material undertaken by him in order to apply the provisions of section 206C?
Explanation (b) to section 206C defines ‘scrap’ as ‘waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons’. It is evident that the word ‘scrap’ occurs twice in the said definition. 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 meaning as it is understood in common parlance. In common parlance, ‘waste’ is understood as something unusable or unwanted material. According to the Concise Oxford Dictionary, ‘waste’ is something which has been ‘eliminated or discarded as no longer useful or required’. ‘Scrap’, on the other hand, represents something which is left over after the greater part has been used or consumed. ‘Scrap’ thus refers to the incidental residue derived from certain types of manufacture, which is recoverable without further processing. It is in this context that the words ‘from the manufacture or mechanical working of materials’ qualify the preceding word ‘scrap’ and not ‘waste’. The definition of ‘scrap’ as given in Explanation (b) is not limited to scrap fromthe manufacture or mechanical working of materials alone but extends to cover ‘waste’ also. Therefore, the scope of the term ‘scrap’ as defined in Explanation (b) cannot be interpreted so as to restrict its application to scrap from the manufacture or mechanical working of materials alone.
The word ‘and’ in the expression ‘waste and scrap from the manufacture or mechanical working of materials’ has been used to enlarge the scope of ‘scrap’, so as to cover both, i.e., waste as well as scrap from the manufacture or mechanical working of materials.
Section 206C seeks to prevent evasion of taxes. It therefore, needs to be construed in a manner that seeks to achieve the purpose for which it has been enacted.
Further, the use of the words ‘business of trading’ in the head note of section 206C makes it clear that the applicability of section 206C is not restricted to sale of scrap generated from the business of manufacturing undertaken by the assessee himself but covers sale of scrap in the business of trading in scrap also.
b) Should the mode of sale of scrap be akin to auction or tender in order to fall in the definition of “buyer” u/s. 206C?
It was submitted that the provisions of section 206C require a seller to collect the tax at source from the buyer (and from none else) on sale, inter alia, of scrap. Attention was drawn to the definition of ‘buyer’ as given in sub-clause(i) of clause (aa) of Explanation to section 206C, which defines a ‘buyer’ as ‘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) ……’.
Placing reliance on the interpretative tools of noscitur a sociis and ejusdem generis, it was contended that the phrase ‘any other mode’ in the expression ‘a person who obtains in any sale, by way of auction, tender or any other mode …..’ in Explanation (aa)(i) would get its meaning from the words preceding it, namely, ‘by way of auction, tender’ and, therefore, the said phrase, namely, ‘any other mode’ would have to be construed narrowly and in the same sense as something akin to auction or tender.
It was contended that the assessee has sold the scrap in retail trade and not by way of auction or tender or any similar mode or mode akin to auction or tender and, therefore, it was not required to collect tax at source from them u/s. 206C as such purchasers in retail trade were not buyers within the meaning of Explanation (aa)(i) to section 206C.
The principles of ‘noscitur a sociis’ and ‘ejusdem generis’ apply only when meaning of questionable or doubtful words or phrases in a statute is required to be ascertained. If a given provision is plain and unambiguous and the legislative intent is clear, there is no occasion to call in aid those rules.
The use of the word ‘or’ in the aforesaid expression shows that all the three phrases (namely, auction, tender or any other mode) are intended to carry independent meaning without being controlled by each other. The words “any other mode” are words of wide amplitude and, therefore, cover all possible modes of sales in addition to specific modes of sales by way of auction or tender. Hence, they cannot be construed ejusdem generis or as referring to similar sales as those by way of auction or tender.
c) Does the first proviso to section 206C(6A) apply retrospectively?
The attention of Tribunal was also drawn to the first proviso inserted in section 206C(6A) with effect from 01-07-2012 which stipulates that the payer who fails to deduct tax on the payment made to payee shall not be deemed to be an assessee in default if the payee has paid the tax due on his returned income and fulfilled the other conditions specified therein.
In the aforesaid background, the issue that arises for consideration is whether the first proviso to section 206C(6A) is applicable to pending matters also notwithstanding the fact that it has been made effective from 01-07-2012.
Keeping in view the fact that the first proviso to s/s. (6A) of section 206C not only seeks to rationalise the provisions relating to collection of tax at source but is also beneficial in nature in that it seeks to provide relief to the collectors of tax at source from the consequences flowing from non/short collection of tax at source after ensuring that the interest of the revenue is well protected, thus, there is no hesitation to hold that the said proviso would apply retrospectively and, therefore, to both the assessment years under appeal.
