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K.SANKARAKRISHNAN (INDIVIDUAL)     05 February 2010

TCS on Scrap

One of my client is a trader in Scrap. When he sells his scrap to other scrap traders, whether my client has to collect TCS from that buyer trader? 



Learning

 20 Replies

Asha Pole (Legal)     06 February 2010

Yes of course, since the relationship between both the scrap dealer would be of a buyer and a seller.

Vineet (Director)     08 February 2010

Yes TCS is applicable in the case of traders only. Please refer to section 206C(1A) of the Act.

Imran Desai (Partner)     12 March 2010

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.

Vineet (Director)     12 March 2010

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.

Imran Desai (Partner)     18 March 2010

Mr. Vineet, I have some questions for you.

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. 

 

This

 


 

Vineet (Director)     19 March 2010

Dear Mr imran

 

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.

Imran Desai (Partner)     20 March 2010

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.


Attached File : 56 56 output.pdf downloaded: 1703 times

Imran Desai (Partner)     20 March 2010

Refer attachment 429.3-1para Last two lines will clear all

Vineet (Director)     20 March 2010

 

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 :

"buyer  means 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-section  (1) or the right to  receive any such goods but does not include,--
 
 (i) a public sector company,
 
(ii) a  buyer in  the further  sale of  such  goods  obtained  in pursuance of such sale,     or
 
 (iii) a  buyer where  the 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).

Manoj Kr. Sharma (ASISST. MANAGAR ACCOUNTS)     07 December 2010

Dear sir,

If we are salling scarp to following person then TCS will be charge or not.

1- If buyer, scarp materail purchase  for their personal use.

2 If buyer, scarp material purchase for further trade.

Please advice

paresh zatakia (C.A.)     28 June 2011

dear Colleagues,

see the attached citataion,and give opinion

1) what if scrap  trader purchases from a manufacturer and then resells,whether he is liable to collect tcs?

2) he impoers from abraod,whether he is liable?

regards

c.a.paresh zatakia

9833855518

nikhil kanani (student)     21 August 2011

I want to ask that,

"What is meant by Manufacture or Mechanical Working of Materials ? ",

Does it include scrap sale by construction industry ( Sale of scrap of construction work of building )

Sadashiv Rupchand Gaikwad (Partner)     10 September 2011

First thing TCS is applicable only for those transaction under audit.If trader has not audit need not make TCS of buyers

Vivek Vishnoi (Service)     23 December 2011

 

Dear Colleagues

 

please go through the following judgement wherein it is clear that simple trading of scrap is not covered under the provisions of Sec. 206C.

 

IN THE INCOME TAX APPELLATE TRIBUNAL 

  ‘B’ BENCH – AHMEDABAD 

(BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM) 

ITA No.1213 and 1214/Ahd/2010

A. Y.: 2009-10 and 2010-11 

Navine Fluorine International 

Ltd.    ,Surat – Navsari Road, 

Bbestab, Surat  

Vs The A. C. I. T., TDS Circle,  

Surat 

PA No. AABCP 0464 B 

(Appellant)  (Respondent) 

Appellant by Shri Manish J. Shah, AR 

Respondent by Shri K. Madhusudan, Sr. DR 

O R D E R

PER BHAVNESH SAINI:  Both the appeals by the assessee 

are directed against the common order of the learned CIT(A)-I, Surat 

dated 08-02-2010 for assessment years 2009-10 and 2010-11 

challenging the order of the learned CIT(A) in confirming the action of 

the AO holding that the assessee has failed to collect tax at sources 

u/s 206C (6) of the IT Act on sale of scrap and consequently of 

charging interest u/s 206C (7) of the IT Act.  

2.  The issue in both the appeals are regarding levy of tax u/s 206 

C (6) and interest u/s 206C (7) of the IT Act.  ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

2

3.  In the assessment order the AO has stated that the assessee 

is engaged in the manufacture of fluorine and other refrigerant gases. 

During the survey operation u/s 133A of the IT Act conducted on 21-

07-2009 it was noticed that the assessee has received payments on 

account of sale of scrap. The assessee company had not collected 

tax (TCS) at the time of receipt of the sale proceeds or at the time of 

debiting the account of the purchasers. The AO, therefore, issued a 

show cause notice as to why the tax be not raised u/s 206C (6) and 

interest u/s 206C (7). The assessee replied that the scrap sold was 

plastic, M. S. & G. I. drums, wooden scrap, plastic material, used oil, 

electrical cables etc. It was stated as per definition of Scrap in 

Explanation (b) to section 206 C, the scrap should be such waste or 

scrap which arises from manufacturing or mechanical working of 

material. It was stated by the assessee that the nature of scrap 

generated in the assessee’s premises did not arise  from 

manufacturing of product dealt by the company and,  therefore, the 

provisions of section 206C were not attracted.  The AO did not accept 

the above explanation. The details of scrap sold show that it 

consisted of various things, such as, packing material, oil, electrical 

items, etc. The list of scrap is as under: 

a) M.S./G,I. drums  -  first 

b) M.S./G.I. drums  -  second 

c) Plastic Drums  - first  

d) Plastic bags 

e) Plastic lime bags (torn) 

f) Used oil in drum 

g) Wooden Scrap 

h) Scrap/damaged old MS/GI barrels 

i) Scrap torn plastic carbuyos 

j) Scrap - MS light ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

3

k) Scrap -  MS heavy 

l) Scrap Electrical cables 

m) Scrap plastic material 

n) Empty bromine crates  

o) Inconel 600 place 1 mtr x 2 mtr x 36 mm 

The AO stated that the above list showed that materials sold were 

those which have been generated from the manufacturing activity 

whether directly or indirectly. These materials were not usable which 

is evident from the narration. The AO further stated that the assessee 

has not obtained any declaration from the purchaser in Form 

NO.27C. This also substantiates the fact that the scrap purchased by 

the purchaser was not meant for any manufacturing but as scrap 

only. In view of the above, the AO invoked the provisions of section 

206C and raised the tax being 1% of the sales and levied interest u/s 

206C (7) of the IT Act. The TCS demand raised for 2009-10 was 

Rs.44,200/- and interest of Rs.5,852/-. For assessment year 2010-11 

the TCS demand raised is Rs.33,626/- and interest of Rs.1,241/-.  

4. The orders of the AO were challenged before the  learned 

CIT(A) and the assessee has repeated the submissions made before 

the AO and stated that word scrap has been defined in explanation 

(b) to section 206C of the IT Act to mean “waste and scrap from the 

manufacturing or mechanical working of materials which is definitely 

not usable as such because of breakages, cutting up, wear and other 

reasons”. From this definition, it is clear that scrap to be covered u/s 

206 C of the IT Act should arise from the manufacture or mechanical 

working of material and since the assessee’s scrap did not arise from 

manufacture or mechanical work of material, the provisions of section ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

4

206C of the IT Act are not attracted. The assessee, therefore, stated 

that the demand should be deleted.  

5. The learned CIT(A) considering the submission of the assessee 

and the observation of the AO dismissed both the appeals of the 

assessee. His findings in Para 2.3 and 3 are reproduced as under: 

“2.3 I have considered the submission made by the 

appellant and the observation of the AO. As per the

provisions of Section 206C, scrap is included on which 

one percent TCS is required to be collected by the 

assessee. The definition of scrap as stated by the 

appellant and the AO is also very clear, which includes 

any scrap which cannot be used directly for 

manufacturing purpose by the purchaser and which has 

been generated from the manufacture of mechanical work 

of materials. The list of items given above clearly shows 

that the same has been generated by the assessee 

company. The assessee company is only engaged in the 

manufacturing of fluorine and other refrigerant gases. 

Hence, the entire scrap has been generated out of its 

manufacturing activity. Therefore, the provisions of 

section 206C are attracted. The fact that this scrap is not 

directly used for manufacture is further clear as the 

assessee has not obtained declaration as provided under 

Rule 37C in the Form No.27C. Hence, the action of the 

AO is confirmed and these grounds of appeal are 

dismissed.  

   3. In the result, the appeal is dismissed”. 

6. We have heard the learned representatives of both the parties 

and perused the findings of the authorities below. 

7. The learned Counsel for the assessee reiterated  the 

submission made before the authorities below and submitted that ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

5

from the definition of scrap provided in explanation (b) to section 206 

C of the IT Act it would be clear and include only  such waste and 

scrap which arises from manufacture of mechanical working of 

materials. Further, such waste should not be usable as such. He has 

further submitted that none of the items sold by the assessee arising 

from manufacture of products dealt by the assessee, therefore, 

provisions of section 206 C of the IT Act are not attracted to the scrap 

under reference sold by the assessee. He has submitted that the 

word “waste and scrap” used in explanation of scrap should be read 

together and should have direct connection with manufacture or 

mechanical working of material and as such orders of the authorities 

below are liable to be set aside.  

8. On the other hand, the learned DR relied upon the orders of the 

authorities below and submitted that the intention  of the legislature 

was clear to charge 1% tax on the scrap and that the meaning of 

scrap includes both waste and scrap and as such the waste or the 

scrap which is sold is also subjected to tax and for the waste there is 

no need to have any connection with manufacture or  mechanical 

working of material. He has submitted that the assessee has 

admittedly sold the scrap; therefore, provisions of section 206 C of 

the IT Act are clearly applicable in the case of the assessee. The 

learned DR submitted that the word waste and scrap  are different 

items. He has, therefore, submitted that the appeals of the assessee 

have no merit and the same be dismissed.  ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

6

9. We have considered the rival submissions and perused the 

findings of the authorities below. The applicability of the provisions of 

section 206 C of the IT Act for charging of tax on  scrap is not in 

dispute. It is also not in dispute that the assessee has sold scarp of 

various items as noted above in this order. The issue under 

consideration depends upon the interpretation of the meaning of 

scrap as is provided in explanation (b) to section 206 C of the IT Act. 

It is, therefore, necessary to refer to some of the relevant provisions 

connected with the issue provided u/s 206 C of the IT Act. The same 

reads as under:  

“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 incometax: 

[TABLE] 

Sl. No. Nature of goods Percentage 

(1) (2) (3) 

(i) Alcoholic Liquor for human consumption One per cent

(ii) Tendu leaves  Five per cent

(iii) Timber obtained under a forest lease Two and onehalf per cent 

(iv) Timber obtained by any mode other than under a 

forest lease 

Two and onehalf per cent 

(v)  Any other forest produce not being timber or tendu 

leaves 

Two and onehalf per cent 

(vi) Scrap  One per 

cent:] ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

7

 [Provided that every person, being a seller shall at the 

time, during the period beginning on the 1st day of June, 

2003 and ending on the day immediately preceding the 

date on which the Taxation Laws (Amendment) Act, 2003 

comes into force, of debiting of the amount payable by the 

buyer to the account of the buyer or 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 as it stood 

immediately before the 1st day of June, 2003, a sum

equal to the percentage, specified in the corresponding 

entry in column (3) of the said Table, of such amount as 

income-tax in accordance with the provisions of this 

section as they stood immediately before the 1st day of 

June, 2003.]] 

[(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 and not for trading purposes. 

(1B) The person responsible for collecting tax under this 

section shall deliver or cause to be delivered to the Chief 

Commissioner or Commissioner one copy of the 

declaration referred to in sub-section (1A) on or before 

the seventh day of the month next following the month in 

which the declaration is furnished to him.] 

[(1C) Every person, who grants a lease or a licence or 

enters into a contract or otherwise transfers any right or 

interest either in whole or in part in any parking lot or toll 

plaza or mine or quarry, to another person, other than a 

public sector company (hereafter in this section referred ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

8

to as “licensee or lessee”) for the use of such parking lot 

or toll plaza or mine or quarry for the purpose of business 

shall, at the time of debiting of the amount payable by the 

licensee or lessee to the account of the licensee or lessee 

or at the time of receipt of such amount from the licensee 

or lessee in cash or by the issue of a cheque or draft or 

by any other mode, whichever is earlier, collect from the 

licensee or lessee of any such licence, contract or lease 

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: 

TABLE 

Sl. No. Nature of contract or licence or lease, etc. Percentage 

(1) (2) (3) 

(i) Parking lot Two per cent 

(ii) Toll plaza Two per cent 

(iii) Mining and quarrying Two per cent.] 

[Explanation 1.—For the purposes of this sub-section, 

“mining and quarrying” shall not include mining and

quarrying of mineral oil. 

Explanation 2.—For the purposes of Explanation 1, 

“mineral oil” includes petroleum and natural gas.] 

(2) The power to recover tax by collection under subsection (1) [or sub-section (1C)] shall be without prejudice 

to any other mode of recovery. 

 (6) Any person responsible for collecting the tax who fails 

to collect the tax in accordance with the provisions of this 

section, shall, notwithstanding such failure, be liable to 

pay the tax to the credit of the Central Government in 

accordance with the provisions of sub-section (3). 

[(6A) If any person responsible for collecting tax  in 

accordance with the provisions of this section does not ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

9

collect the whole or any part of the tax or after collecting, 

fails to pay the tax as required by or under this Act, he 

shall, without prejudice to any other consequences which 

he may incur, be deemed to be an assessee in default in 

respect of the tax: 

Provided that no penalty shall be charged under section 

221 from such person unless the Assessing Officer is 

satisfied that the person has without good and sufficient 

reasons failed to collect and pay the tax.] 

(7) Without prejudice to the provisions of sub-section (6), 

if the [person responsible for collecting tax] does not 

collect the tax or after collecting the tax fails to pay it as 

required under this section, he shall be liable to  pay 

simple interest at the rate of [one] per cent per month or 

part thereof on the amount of such tax from the date on 

which such tax was collectible to the date on which the 

tax was actually paid [and such interest shall be paid 

before furnishing the quarterly statement for each quarter 

in accordance with the provisions of sub-section (3)].” 

9.1 The meaning of scrap as provided in Explanation (b) to section 

206 C of the IT Act reads as under: 

      “Explanation.—For the purposes of this section,— 

  

[(b) “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 and other reasons;” 

10. The Hon’ble Delhi High Court in the case of CIT Vs Deep 

Chand and others 257 ITR 756 relied upon the decision of the 

Hon’ble Supreme Court in the case of Gurudevdatta VKSSS Maryadit ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

10

Vs State of Maharashtra AIR [2001] SC, 1980 in which it was held  as 

under: 

     

"It is a cardinal principle of interpretation of statute that 

the words of a statute must be understood in their natural, 

ordinary or popular sense and construed according to 

their grammatical meaning, unless such construction

leads to some absurdity or unless there is something in 

the context or in the object of the statute to suggest to the 

contrary. The golden rule is that the words of a statute 

must prima facie be given their ordinary meaning. It is yet 

another rule of construction that when the words of the 

statute are clear, plain and unambiguous, then the courts 

are bound to give effect to that meaning, irrespective of 

the consequences. It is said that the words themselves 

best declare the intention of the law-giver. The courts 

have adhered to the principle that efforts should be made 

to give meaning to each and every word used by the 

Legislature and it is not a sound principle of construction 

to brush aside words in a statute as being inapposite 

surpluses, if they can have a proper application in

circumstances conceivable within the contemplation  of 

the statute.” 

10.1 By following the above decision, the Hon’ble High Court held as 

under: 

“It is now a well settled principle of law that a literal 

meaning should be attributed to a statute. The golden rule 

of interpretation should ordinarily be adhered to.”

11. The ordinary meaning of scrap and waste as have been 

provided in Oxford English Dictionary provides - ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

11

(a) Scrap -  Small piece or amount of something 

especially one that is leftover after greater part has been used – 

material discarded for reprocessing. 

(b) Waste -  eliminated or discarded as no longer useful or 

required.  

11.1 The ordinary meaning of scrap and waste thus has a similarity 

in words. Ordinarily, the word “AND” is used in a conjunctive sense. 

This word is used to connect clauses or sentences or to coordinate 

words in the same clauses.  

12. The explanation to section 206 C of the IT Act  provides the 

meaning of scrap means “waste and scrap” from manufacture or 

mechanical working of material which is definitely not usable as such 

because of breakage, cutting up, wear and other reasons. In the 

above definition the important words used in the definition of scrap 

are “waste and scrap” – “from manufacture” and “which is”. The word 

“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 the words waste and scrap together which are 

generated out of manufacturing process of the assessee. The words 

waste and scrap should have nexus with the manufacturing or 

mechanical working of material. Thereafter, the word used is “which

is” definitely not usable. The word “is” as used in this definition of the 

scrap meant for singular item i.e. “waste and scrap”. The word waste ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

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“which is” denotes to singular item and thus the singular item would 

be waste and scrap. The words waste and scrap thus cannot be read 

differently as is argued by the learned DR. The list of scrap sold by 

the assessee is reproduced above which are not connected with 

manufacture or mechanical working of material. The  findings of the 

learned CIT(A) are based on presumption only that since the 

assessee is engaged in manufacture of fluorine and other refrigerated 

gases, therefore, entire scrap is generated out of  its manufacturing 

activities. The findings of the learned CIT(A)  are not based on any 

material or evidence. The assessee is admittedly engaged in 

manufacturing of fluorine and other refrigerated gases and list of 

scrap items noted above would indicate that same cannot be used for 

manufacturing or mechanical working of material of fluorine and other 

refrigeration gases. By the nature of the scrap items noted above, the 

same cannot be used while manufacturing gases or doing any 

mechanical working of the material for the gases. The items of the 

scrap in the case of the assessee would not form part of the definition 

of the scrap as is provided in Explanation (b) to section 206 C of the 

IT Act. Thus, the explanation is wrongly applied in the case of the 

assessee.  

13.  Considering the facts noted above, we are of the view that the 

authorities below have wrongly applied the meaning  of scrap as is 

provided in Explanation (b) to section 206 C of the IT Act in the case 

of the assessee. Therefore, the assessee cannot be  held to be in 

default. The assessee is not required to deduct tax u/s 206 C (6) of 

the IT Act on the items of scrap as noted above. Resultantly, no ITA No.1213 and 1214/Ahd/2010 

Navine Fluorine International Ltd. Vs ACIT, TDS Cir, Surat  

13

interest could be charged u/s 206C (7) of the IT Act. We accordingly, 

set aside the orders of the authorities below and allow both the 

appeals of the assessee.  

14. In the result, both the appeals of the assessee are allowed.  

Order pronounced in the open Court on  15-02-2011 

  Sd/-      Sd/- 

         (D.  C. AGRAWAL) 

           ACCOUNTANT MEMBER 

(BHAVNESH SAINI) 

JUDICIAL  MEMBER 

Date : 15-02-2011 

Lakshmikant/- 

Copy of the order forwarded to:  

1. The Appellant 

2. The Respondent  

3. The CIT concerned 

4. The CIT(A) concerned  

5. The DR, ITAT, Ahmedabad 

6. Guard File  

  

  BY ORDER 

                                                  Dy. Registrar, ITAT, Ahmedabad 


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