2013 (9) TMI 274 - AT - Income Tax

Default u/s 206C - Import of scrap - TCS (Tax Collection at Source) - Held that - assessee himself has declared the goods imported by him as brass scrap before the Customs authorities. He is therefore bound by that declaration. Once it is declared as waste and scrap under the Customs Tariff Act, it necessarily follows that it is in the nature of waste and scrap, which is definitely not usable as such. Be that as it may, the definition of scrap under Explanation (b) is wider in scope than the definition of scrap as given in the Customs Tariff Act. In this view of the matter, materials recovered on demolition of buildings, old machines/fixtures/fittings sold as scrap, discarded packing materials, etc., would also fall in the category of scrap as defined in Explanation (b) as all of them are items, which are no longer useful as such, and therefore fall in the category of waste and scrap from the manufacture or mechanical working of materials, which is definitely not usable as such - Decided against assessee. Assessee submitted that he was under a bona-fide belief that what was imported and sold by him was not scrap within the meaning of Explanation (b) to section 206C. We are unable to accept the aforesaid submission for two principal reasons. One, the assessee has placed no material either before the AO or before the CIT(A) or before us to establish his bona-fide in the matter. It is not his case that he was advised by any competent professional that the scrap sold by him would not attract the provisions of section 206C. Two, the provisions of section 206C are not subject to reasonable cause or bona-fide belief like provisions relating to levy of penalty. It is the assessee himself who had declared that the materials sold by him was imported by him as scrap. The AO is not required to prove facts admitted by the assessee himself. Once the assessee makes a declaration to that effect before the Government and the Government also acts upon that declaration, he is precluded from pleading otherwise before the Government. Section 115 of the Evidence Act is quite apposite. Both the authorities, namely, the AO and the CIT(A), have taken cognizance of the aforesaid declaration made by the assessee before the Customs authorities before fixing the liability on the assessee. It cannot therefore be said that the AO has not brought out any material on record to show that the material imported and subsequently sold by the assessee was scrap . Two, we have also taken the view that the material imported and subsequently sold by the assessee was scrap within the meaning of Explanation (b) to section 206C. First proviso to sub-section (6A) of section 206C not only seeks to rationalize 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, we have no hesitation to hold that the said proviso would apply retrospectively and therefore to both the assessment years under appeal. We therefore direct the assessee to appear before the Assessing Officer along with relevant documents as stipulated by the first proviso to sub-section (6A) of section 206C within two months of the date on which this order is pronounced upon which the AO shall examine the claim of the assessee in the light of the said provisions and pass appropriate order accordingly in conformity with law after giving reasonable opportunity of hearing to the assessee - Following decision of Allied Motors (P.) Ltd. v. CIT 1997 (3) TMI 9 - SUPREME Court - Decided in favour of assessee.

Issues Involved:
1. Liability for default of Tax Collected at Source (TCS) and interest.
2. Interpretation of the definition of "Scrap" under Section 206C(1).
3. Bona fide belief regarding the interpretation of the definition of scrap.
4. Onus of proving the material as "Scrap".
5. Applicability of Section 206C to the facts of the appellant.
6. Double recovery of tax.
7. Additional evidence and its admission.
8. Applicability of first Proviso to sub-section (6A) of section 206C.

Detailed Analysis:

1. Liability for default of TCS and interest:
The Tribunal upheld the orders of the Commissioner of Income Tax (Appeals), confirming the appellant's liability for default of TCS amounting to Rs. 2,61,225/- and interest of Rs. 28,723/- for AY 2009-10, and TCS of Rs. 6,28,614/- and interest of Rs. 10,519/- for AY 2010-11. The Tribunal found that the appellant failed to collect tax at source as mandated by Section 206C(1) of the Income-tax Act on the sale of brass scrap.

2. Interpretation of the definition of "Scrap" under Section 206C(1):
The Tribunal clarified that the term "scrap" as defined in Explanation (b) to Section 206C includes "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." The Tribunal rejected the appellant's argument that only scrap generated from the appellant's manufacturing or mechanical working qualifies as "scrap." It was held that the definition covers all kinds of waste and scrap, including those arising from any manufacture or mechanical working of materials.

3. Bona fide belief regarding the interpretation of the definition of scrap:
The Tribunal dismissed the appellant's claim of a bona fide belief regarding the interpretation of "scrap." The Tribunal noted that the appellant did not provide any material evidence to establish such a belief and emphasized that the provisions of Section 206C are not subject to reasonable cause or bona fide belief like penalty provisions.

4. Onus of proving the material as "Scrap":
The Tribunal found that the appellant had declared the imported materials as "brass scrap" before the Customs authorities, and thus, the Assessing Officer (AO) was not required to bring additional material on record to prove that the materials were "scrap." The Tribunal held that the appellant is bound by its declaration before the Customs authorities.

5. Applicability of Section 206C to the facts of the appellant:
The Tribunal held that Section 206C applies to both manufacturers and traders of scrap. The term "seller" under Explanation (c) to Section 206C does not require the seller to be a manufacturer. The Tribunal emphasized that the head note of Section 206C, which includes "business of trading in scrap," indicates that the section applies to traders as well.

6. Double recovery of tax:
The Tribunal dismissed the appellant's argument regarding double recovery of tax, noting that the appellant did not furnish any evidence to support the claim that the buyers had disclosed such purchases and paid tax.

7. Additional evidence and its admission:
The Tribunal admitted additional evidence submitted by the appellant, including letters from foreign suppliers regarding the nature and origin of the material, with sample invoices and import documents. The Tribunal admitted these documents to avoid any prejudice to the appellant.

8. Applicability of first Proviso to sub-section (6A) of section 206C:
The Tribunal considered the first Proviso to sub-section (6A) of Section 206C, which was inserted with effect from 1.7.2012. The Tribunal held that this proviso, which provides relief from the consequences of non-collection of tax at source if certain conditions are met, applies retrospectively. The Tribunal directed the appellant to present relevant documents to the AO within two months, upon which the AO shall examine the claim and pass an appropriate order.

Conclusion:
The appeals were partly allowed, with the Tribunal upholding the appellant's liability for TCS and interest while providing relief under the first Proviso to sub-section (6A) of Section 206C, subject to verification by the AO.

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