Assessee being mere trader of scrap would not be liable to collect tax at source u/s 206C when such scrap was not a result of manufacture or mechanical working of materials

14. [2020] 78 ITR (Trib.) 451
(Luck.)(Trib.) Lala Bharat Lal & Sons vs. ITO ITA No. 14, 15 & 16/LKW/2019 A.Ys.: 2014-15 to 2016-17 Date of order: 19^th February,
2020

Assessee
being mere trader of scrap would not be liable to collect tax at source u/s
206C when such scrap was not a result of manufacture or mechanical working of
materials

FACTS

The assessee was in the
business of dealing / trading in metal scrap. For the relevant assessment years
the A.O. held that the assessee was liable to collect tax at source @ 1% of the
sale amount as per the provisions of section 206C(1). The assessee contended
that the sale / trading done by him did not tantamount to sale of scrap as defined
in Explanation (b) to section 206C, as the same had not been generated from
manufacture or mechanical work. This contention was rejected by the CIT(A). The
assessee then filed an appeal before the Tribunal.

The assessee relied on the
decision of the Ahmedabad Tribunal in Navine Fluorine International Ltd.
vs. ACIT [2011] 45 SOT 86 wherein it was held that for invoking the
provisions of Explanation (b) to section 206C, it was necessary that waste and
scrap sold by the assessee should arise from the manufacturing or mechanical
working done by the assessee. Reliance was also placed on Nathulal P.
Lavti vs. ITO [2011] 48 SOT 83 (URO) (Rajkot).

On the other hand, Revenue
placed reliance on the decision of the special bench of the Tribunal in the
case of Bharti Auto Products vs. CIT [2013] 145 ITD 1 (Rajkot)(SB)
which held that all the traders in scrap were also liable to collect tax at
source under the provisions of section 206C.

Against the arguments of
the Revenue, the assessee relied on the decision of the Gujarat High Court in CIT
vs. Priya Blue Industries (P) Ltd. [2016] 381 ITR 210 (Gujarat) wherein
the plea of the Revenue to consider the decision of the special bench in case
of Bharti Auto Products vs. CIT (Supra) was dismissed. Reliance
was also placed on the decision of the Ahmedabad Tribunal in the case of Azizbhai
A. Lada vs. ITO [ITA 765/Ahd/2015] and Dhasawal Traders vs. ITO
[2016] 161 ITD 142 wherein the judgment of the Gujarat High Court in
the case of Priya Blue Industries (P) Ltd. (Supra) was considered
and relief was granted to the assessee.

HELD

The Tribunal held that it
was an undisputed fact that the assessee was not a manufacturer and was only a
dealer in scrap.

In the case of Navine
Fluorine International Ltd. (Supra), it was held that to fall under the
definition of scrap as given in the Explanation to section 206C, the term
‘waste’ and ‘scrap’ are one and it should arise from manufacture and if the
scrap is not coming out of manufacture, then the items do not fall under the
definition of scrap and thus are not liable to TCS.

Further, in the case of ITO
(TDS) vs. Priya Blue Industries (P) Ltd. [ITA No. 2207/ADH/2011], the
Tribunal had held that the words ‘waste’ and ‘scrap’ should have nexus with
manufacturing or mechanical working of materials.

The Tribunal relied upon
the decision of the Gujarat High Court in CIT vs. Priya Blue Industries
(P) Ltd. (Supra), which held that the expression ‘scrap’ defined in
clause (b) of the Explanation to section 206C means ‘waste’ and ‘scrap’ from manufacture
of mechanical working of materials, which is not useable as such and the
expression ‘scrap’ contained in clause (b) of the Explanation to section 206C
shows that any material which is useable as such would not fall within the
ambit of ‘scrap’.

Next, the Tribunal referred
to the decision in the case of Dhasawal Traders vs. ITO (Supra)
which held that when the assessee had not generated any scrap in manufacturing
activity and he was only a trader having sold products which were re-useable as
such, hence he was not supposed to collect tax at source.

It was also held that the
Gujarat High Court had duly considered the decision of the special bench.
Accordingly, the Tribunal, following the decision in CIT vs. Priya Blue
Industries (P) Ltd. (Supra) held that the assessee being a trader of
scrap not involved in manufacturing activity, cannot be fastened with the
provisions of section 206C(1).