‘Scrap’ has been defined 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 would include only such waste or scrap which arises from manufacture or mechanical working of materials. Further, such waste should not be usable as such. Accordingly, it would not include any waste or scrap—
a. which does not arise from manufacture or mechanical working of materials; or
b. which is usable as such.
Thus, the following are not covered—
a. waste or scrap arising from packing materials, newspapers, old machinery scrapped, etc., which cannot be said to arise from manufacture; or
b. by-products generated from the manufacturing process as the same could be used as such.
It can be inferred that, in case of sale of scrap, the provision would apply to only those sellers who are engaged in the business of manufacturing or mechanical working of materials.
In your case the assessee in reseller and not manufacturer and hence the provision will not apply.
Dear Mr Imran, the TCS provision is applicable in the case of SELLER of Scrap irrespective of the fact whether the seller itself generates the scrap or resell it.
The only exemption in this matter is sale to ultimate user who utilises the scrap for manufacturing or processing. In the case of sale to traders (resellers) the TCS provisions are very much applicable at every instance of sale.
Hence in this case TCS provisions are applibale as the buyers are traders in scrap.
For e.g a trader trades in pig iron scrap. He purchases from various source such as (i) scrap from manufacturer (ii) From Alang where ships are broken and pig iron scrap is sold (iii) and last he imports the same commodity.
Now as per above communication T.C.S is applicable on 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., So it is clear that T.C.S is applicable in first source (Manufacture). now please give an opinion whether Alnang is liable to deduct T.C.S as there in no manufacturing process and futher salesT.C.S has to deducted? and whether goods purchased from impoter were the source is not known, when sold T.C.S has to be deducted. If not how the assesee will maintain his books of account.
First thing first, TCS is Tax Collected at Source and not deduction. It is liability casted on certain Persons, who collect or receive money in certain transaction to recover tax at specfied rate in addition to sales consideration from the buyer.
The point of first sale concept which was applicable for the purposes of deemed profit u/s 44AC and 206C as applicable wef 1-6-1988 has been done away with amendment wef 1-4-1992. The section 44AC stands deleted from that date and section 206C reads as follows:
Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
206C. (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:
Now I hope it is pretty clear that the liability to collect TCS has been casted upon every seller irrespective of the source from where he procures the scrap or he himself is the manufacturer of such scrap. That answers your questions. In this case Alangh scrap seller will collect TCS from your reseller and your reseller will collect TCS on subsequent sale. In the case of import of scrap, as the foreign party is not bound by Indian Laws, they will not collect any TCS and therefore your reseller will not avail any tax credit for the same.
The only exemption from TCS is provided in cases where scrap is sold to a buyer who is end user of such scrap for any manufacturing process and for such exemption the buyer has to provide a declaration in prescribed format as per sub-section (1A) of section 206C.
In the case of TCS, the seller merely acts as a collector of tax and deposit the same to treasury, he is not supposed to maintain any specific accounts. The buyer can avail credit for the TCS in his return of income as and when the income accrues to him on such purchased goods.
You are advised to refer defination of scrap and among the items priscrbed in the act for the prvison of T.C.S only scrap has been define seprately. An clear interpretation is given in direct taxes law & practice by Taxxman I am enclosing a copy for your reference.
It would include only such waste or scrap which arises from manufacture or mechanical working of materials.
The defenation of Buyer & seller will apply to only those seller who are covered under the defination of scrap and not all.
The attachment provided are excerpts from a book which do not draw any reference from any court judgement, law, circular, notification or legal explanation. It is a trivial inference drawn by the author and should not be considered as final word or reference.
The definition of scrap and definition of seller are two different provisions in the statue and as such should not be mixed to draw a narrow conclusion.
The definition of Seller as it stands in statue today covers a vide array of persons including even individuals and HUF having turnover over specified limits which was not there when this section was originally conceived in 1988 and subsequently overhauled in 1992.
The definition of scrap has been provided to define the underlying item on whose sale TCS provisions are applicable in whatever mode of sale. It doesn't mean that only manufacturer or producer of such sale shall be treated as SELLER for the purposes of TCS. There is no such restriction in statue while defining SELLER. And yes, in Alangh if the wastage is generated by cutting the hull, body, anchor or any other part of the ship, unusable engine parts worn out over the period and cannot be used as such, the same would fall under the definition of scrap.
The exemption from applicability of TCS is provided with respect to BUYERS. The definition of BUYER has undergone many changes since it was first introduced in 1992. Since it's introduction in 1992 till amendment vide Finance Act, 2003 the BUYER was defined as :
"buyermeans aperson whoobtains inany sale,by way of auction, tenderor anyother mode,goods of the nature specified in the Tablein sub-section(1) or the right toreceive any such goods but does not include,--
(i) a public sector company,
(ii) abuyer inthe furthersale ofsuchgoodsobtainedin pursuance of such sale, or
(iii) abuyer wherethe goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act
From the above it is clear that by virtue of second clause above any buyer in second sale was exempted from TCS.
By Finance Act 2003 clause (iii) above was deleted to bring in more buyers in TCS net. However, by Direct Tax Amendment Act, 2003 second clause above was also amended as " a buyer in the retail sale of such goods purchased by him for personal consumption" the provisions as it stands even today.
Thus it makes legislative intent very clear that buyers in all subsequent sales are liable for TCS unless the goods are purchased by them in retail sale for personal consumption or the goods are purchased by actual consumers of such scrap in manufacturing or processing (sub section 1A).