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TMI Blog2013 (9) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... ,225/- and interest amounting to Rs.28,723/-. 2. The learned Commissioner of Income Tax (Appeals) - II, Rajkot erred in interpreting the definition of "Scrap" U/s.206(C)(1). 3. The learned Commissioner of Income Tax (Appeals) - II, Rajkot failed to appreciate that since the appellant held a bonafide belief regarding interpretation of definition of scrap u/s.206, it could not have been treated as an assessee deemed to be in default. The appellant craves leave to add, amend, alter, withdraw any ground of appeal anytime upto the hearing of this appeal." 3. In ITA No.392/Rjt/2011 relating to assessment year 2010-11, the assessee has taken the following grounds of appeal:- "1. The learned Commissioner of Income Tax (Appeals) - II, Rajkot erred in confirming the order of ITO(TDS) - 3, Jamnagar holding the appellant liable for default of TCS of Rs.6,28,614/- and interest amounting to Rs.10,519/-. 2. The learned Commissioner of Income Tax (Appeals) - II, Rajkot erred in interpreting the definition of "Scrap" U/s.206(C)(1). 3. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore no useful purpose would be served by restoring the matter to the file of the CIT(A). In this view of the matter, all the aforesaid three grounds of appeal are admitted for adjudication together with main grounds of appeal. 6. The assessee is an individual. He is an importer, trader and seller of brass scrap. Survey u/s 133A of the Income-tax Act was carried out at his business premises on 21-01-2010. It was noticed that the assessee had imported and sold brass scrap amounting to Rs.2,61,22,573/- in assessment year 2009-10 and Rs.6,28,61,420/- in assessment year 2010-11 without collecting tax at source as required by section 206C(1) of the Income-tax Act. The Assessing Officer therefore issued a show cause notice on 01.02.2010 calling upon the assessee to show cause as to why he should not be treated as assessee in default for non-collection of tax at source @ 1% of sales of brass scrap made by him in both the assessment years under appeal. In reply, the assessee, vide his letter dated 12.02.2010, submitted before the AO that he was a mere trader of imported brass scrap. It was also submitted that the brass scrap sold by him was not generated from the manufacture or mec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seller, at the time of selling of any of the goods of the nature specified in that section will collect sum at a certain percentage. The definition of 'seller' under explanation (c) of section 206C(11) also does not stipulate that the seller should be a manufacturer only. It talks only about the status. 'Buyer' is also defined in explanation (a) of section 206C(11) as a person who obtains goods on sale by certain specified modes. Buyer may be a manufacturer or a trader. The explanation does not differentiate even this aspect as well. The appellant tries to draw support for his contention that only a manufacturer is subject to rigors of section 206C by picking a specific word from the definition of 'scrap' given in the explanation. But the appellant forgets that the substantive portion, i.e. the Title of Section clearly stipulates "profits from the business of trading in scrap". The substantive part weights more than the definition given in the explanation. (b) Secondly, the appellant's argument that it is not a manufacturer and thus it is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 9. In the end result, I fully endorse the views taken by the A.O. in invoking section 206C(1) of the Act in the appellant's case. Consequently, the appeals of the assessee for both the assessment years, i.e., AYs 2009-10 & 2010-11 are dismissed." 7. Aggrieved by the order passed by the CIT(A), the assessee is now in appeal before this Tribunal. At the time of hearing, the assessee prayed for admission of the following documents placed at pp 6-29 of paper-book (Volume-II) filed by the assessee on 12.06.2013 as additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules:- a. Copy of letter from M/s. AL-NAWAZ METAL TR. LLC (foreign supplier) regarding nature and origin of material, with sample invoices and import documents. b. Copy of letter from M/s. DIETIKER AG FUR ROHMENTALLE (foreign supplier) regarding nature and origin of material, with sample invoices and import documents. c. Copy of letter from M/s. OVERSEAS METAL TRADING (foreign supplier) regarding nature and origin of material, with sample invoices and import documents. 8. The aforesaid documents are stated to be relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee comprised of loose and collected items made of brass such as utensils, water taps, hardware items, brass stove, brass show pieces, household items of brass, etc. According to him, the items imported and sold by the assessee were discarded items and not scrap arising from the manufacture or mechanical working of materials. Relying upon the judgment in Vijay Ship Breaking Corporation v. CIT, 314 ITR 309 (SC), he submitted that the word "manufacture" used in Explanation (b) to section 206C was narrower in meaning than the word "production" and therefore discarded items traded by the assessee, which were of personal use by someone at some point of time in the past, would not qualify to be called "scrap" in terms of Explanation (b). (iv) Relying upon the decisions of this Tribunal in Nathulal P Lavti v. ITO, ITA Nos.1167 & 1168/Rjt./2010; and Navine Fluorine International Ltd. v. ACIT, 45 SOT 86, he submitted that both the words "waste" and "scrap" in Explanation (b) were one word and therefore both of them are qualified by the words following them, namely, "from the manufacture or mechanical working of materials which is definitely not usabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Sree manjunatha Wines v. CIT, 202 Taxman 620 (Karn.). 11. Elaborating his arguments further regarding the applicability of first Proviso to sub-section (6A) of section 206, Shri Rindani submitted that a person, other than a person, referred to in sub-section (1D) responsible for collecting tax, who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licenses or lessee shall not be deemed to be an assessee in default in respect of such tax if such buyer or licensee or lessee has fulfilled the conditions laid down in the said Proviso. He submitted that this aspect of the matter has not been examined by the AO and therefore the matter should be restored to the file of the Assessing Officer. 12. Appearing for the assessee, Shri Maharishi made similar submissions as those made by Shri Rindani. He submitted 5 unsigned loose sheets titled "Written submission on the definition of scrap contained in Explanation (b) to section 206C" in which extracts explaining the meaning of "scrap" as downloaded from various sources available on internet have been reproduced. These sources ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, the process of manufacture or mechanical working can be carried out only on materials and therefore only those items could be treated as "scrap", which were generated from the manufacture or mechanical working of "materials". He contended that if the items of scrap were not generated in the course of manufacture or mechanical working of "materials", such items would not be "scrap" as defined in Explanation (b). In this connection, he cited the example of sale of old newspapers. He submitted that old newspapers are not generated from manufacture or mechanical working of "materials" and therefore they would not be "scrap" within the meaning of Explanation (b) to section 206C of the Income-tax Act. On this analogy, he sought to emphasize that discarded items as sold by the assessee would not be "scrap" within the meaning of Explanation (b) to section 206C. It was submitted by him that the aforesaid proposition would clearly emerge if the definition of scrap as given in Explanation (b) to section 206C of the Income-tax Act is considered in its entirety. He contended that the scrap should not only be generated from the manufacture or mechanical working of materials but also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d comparison, he submitted that the legislative intent was quite clear that the buyer, except for the purposes of sub section (1D) of Section 206C, would be a person who obtains specified goods in any sale which must necessarily be by way of auction, tender or any other mode analogous to auction or tender and not by way of retail sale as in sub-clause (ii) of clause (aa) of Explanation 206C. Turning to the facts of the case, he submitted that the Revenue has brought no material on record to show that the assessee has sold brass scrap to a "buyer" by way of auction, tender or any similar mode. According to him, the assessee has sold brass scrap in retail sale and not by way of auction, tender or similar mode and therefore the goods sold by him cannot be said to have been sold to a "buyer" for the purposes of sub-section (6) of section 206C. 15. In reply, the ld. Departmental Representative relied upon the orders passed by the Assessing Officer and the ld. Commissioner (Appeals). He has filed a paper-book, which contains, inter-alia, his written submissions in 14 pages. His submissions, in brief, are as under: (i) Section 206C has been inserted in the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (TDS), he submitted that (1) the term "scrap" is clearly defined in the Explanation to section 206C and there is no requirement that the goods to be eligible for scrap should be produced/manufactured by the seller itself; (2) the term "buyer" is also defined in the same Explanation according to which a buyer is a person who obtains in any sale, by way of auction, tender or any other mode, goods of the specified nature and thus a "buyer" in terms of the said Explanation is not restricted to a person who buys the specified goods in an auction or tender alone but covers a buyer in the retail sale of specified goods as well; and (3) all the sellers of scrap including those trading in scrap are liable to collect tax at source from the buyers of such scrap. 16. It was further submitted by the ld. Departmental Representative that the assessee himself has shown and declared the goods sold by him as "scrap" before the Customs authorities and paid customs duty accordingly and therefore there was no dispute that what was imported and subsequently sold by the assessee was scrap and nothing else. 17. We have heard both the parties and carefully considered their submissions including the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......................... (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 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 any person, other than a person referred to in sub section (1D), responsible for collecting tax in accordance with the provisions of this section, who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee shall not be deemed to be an assessee in default in respect of such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods of the nature specified in the said sub-section; (ab) xxxxxxxxxxx (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; (c) "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold. 19. Section 206C as originally enacted did not provide for collection of tax at source on sale of scrap. By the Finance Act 2003, "scrap" has been included and placed in the Table in sub-section (1) of section 206C as a result of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 206C have been enacted to ensure collection of taxes from persons carrying on particular trades in view of peculiar difficulties experienced by the Revenue in the past in collecting taxes from them. Section 206C thus seeks to prevent evasion of taxes. It therefore needs to be construed strictly and in a manner that seeks to achieve the purpose for which it has been enacted. 22. As rightly submitted by both the parties that it is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute. The courts, in the interpretation of statutes, always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. The legislature is deemed not to waste its words or to say anything in vain and a construction which contributes redundancy to the legislature should not be accepted, except for compelling reasons. 23. The issues under appeal have been clarified by the Central Board of Direct Taxes in its letter No.275/86/2011-IT(B) dated 18th may 2012 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is first used as a term which is sought to be defined and which includes "waste" also and thereafter the word "scrap" is used again in the expression "scrap from the manufacture or mechanical working of materials". The said definition is in two parts. Its first part, i.e., "waste and scrap from the manufacture or mechanical working of materials", refers to what would constitute "scrap" while its second part, namely, "which is definitely not usable as such because of breakage, cutting up, wear and other reasons" refers to the characteristics which a material has to possess in order to fall in the category of "scrap". The second part of definition, being integral part of the definition, also throws light on the scope and ambit of the term "scrap" and therefore needs to be taken into consideration while interpreting the first part of the definition of "scrap". 25. We shall first take up the first part of the definition, namely, "waste and scrap from the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the hand, by machinery, or by art...." "Mechanical working of materials" refers to physical operations on materials. It signifies physical operations to bring about physical change to which the material is subjected in order to change its shape, properties or structure. In order to fall in the definition of "scrap", it is not necessary that the same should occur in the course of manufacture; it can also occur in the course of mechanical working of materials, i.e., in the course of physical operations on materials. Thus, both the operations/processes, namely, the manufacture and mechanical working of materials, can give rise to scrap. Any article or thing arising from the physical operations on materials which is not usable as such would therefore fall in the category of "scrap". As stated earlier, the second part of the definition, i.e., "which is definitely not usable as such because of breakage, cutting up, wear and other reasons" also throws light on the scope of the term "scrap" in as much as it seeks to define the characteristics of scrap. In order to constitute "scrap", the article or thing must not be usable as such because of breakage, cutting up, wear and other reasons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative referred to the definition of "waste and scrap" as given in Note 8(a) to Schedule I (Import Tariff) of the Customs Tariff Act and submitted that the goods imported by the assessee were known as metal scrap in trade circles, both in India and abroad. In this connection, he referred to the Harmonized Commodity and Coding Systems, which are popularly known as HSN or HS, developed by the World Customs Organization and followed by over 200 countries including India to facilitate easy identification of merchandise in international trade. According to him, the goods imported and sold by the assessee being brass scrap fall under the classification of waste and scrap under the said Coding System. In support of his submissions, he relied upon three judgments of the Hon'ble Customs, Excise and Gold Tribunal/Customs, Excise and Service Tax Appellate Tribunal, namely, Sujana Steels Ltd. v. Commissioner of Central Excise, 2000 ECR 776 Tri Chennai; Quick Car Wash Pvt. Ltd. v. Commissioner of Customs, 2007-TIOL-CESTAT-DEL; Collector of Customs v. Shankar Metal Trading Co., 1991 ECR 309 Tri Delhi. 29. We have perused the definition of "waste and scrap" as given in Note 8(a) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are not usable as such, are categorized as waste and scrap under the Customs Tariff Act. The crux of the matter is non-usability of the material as such. If the material is not usable as such, it has to necessarily fall in the category of waste and scrap. The definition of "scrap" as given in Explanation (b) to section 206C of the Income-tax Act covers all kinds of waste including metal waste and metal goods which are not usable as such and therefore is significantly wider in its scope than the definition of "waste and scrap" as given in Note 8(a) of Section XV of Schedule I of the Customs Tariff Act. In this view of the matter, the definition of "scrap" as given in Explanation (b) to section 206C includes not only "waste and scrap" of metal as contemplated by Note 8(a) of Section XV of Schedule I of the Customs Tariff Act but also all kinds of waste and scrap including those arising from the manufacture or mechanical working of materials provided such "waste and scrap" is not usable as such because of breakage, cutting up, wear and other reasons. 32. It was strenuously argued on behalf of the assessee that the Courts and Tribunal have consistently taken the view, in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trading" in the said head note 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. Two, sub-section (1) of section 206C requires the "seller" to collect tax at source. The term "seller" is defined in Explanation (c) to section 206C according to which the term "seller" means "the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him" exceed the monetary limit as specified therein. Explanation (c) to section 206C does not require that a seller of scrap must himself generate scrap from the manufacture or mechanical working of materials. Therefore such a requirement cannot be read in section 206C for its applicability to sale of scrap. Three, the subject matter of sale on which tax is required to be collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrap from the manufacture or mechanical working of materials, which is definitely not usable as such. Resultantly, ground nos. 1 and 2 taken by the assessee in both the assessment years under appeal are dismissed. 36. Apropos ground no. 3, it was submitted that the assessee 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. In this view of the matter, ground no. 3 in both the appeals is dismissed. 37. Apropos additional ground no. 1, it was submitted on behalf of the assessee that the Assessing Officer has fastened the liability on the assessee u/s 206C without bringing any material on record to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be construed narrowly and in the same sense as something akin to auction or tender. It was further submitted that sale of scrap in retail sale/trade could not be construed as sale by way of auction, tender or any other similar mode and therefore such a purchaser of scrap in retail sale could not be treated as buyer within the meaning of Explanation (aa)(i) to section 206C. Several judgments, i.e., Ahmedabad Private Primary Teachers v. Administrative Officer, AIR 2004 SC 1426; Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, AIR 1991 SC 754; Siddheswari Cotton Mills v. Union of India, AIR 1989 SC 1019; Housing Board of Havana v. Havana Housing Board Employees, AIR 1996 SC 434; Amar Chandra Chakroborty v. Collector of Excise, AIR 1972 SC 1863; M/s Grasim Industries Ltd. v. Collector of Customs, judgment dated 4th April 2002 of the Supreme Court in Civil Appeal No. 1951 of 1998; Kavalappara Kottarathil Kochuni v. State of Madras, AIR 1960 SC 1080; Thakur Amarsinghji v. State of Rajasthan, AIR 1955 SC 504; Lokmat Newspapers Pvt. Ltd. v. Shankarprasad, judgment dated 19.7.1999 of the Supreme Court; Gwalior Rayon Silk Mfg. (Wvg.) Co. v. Custodian of Vested Forests, AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that rule. Similarly, a phrase cannot be construed ejusdem generis unless it is susceptible of meaning analogous to the preceding words. The aforesaid propositions are well supported not only by the judgments cited on behalf of the assessee but also by several other judgments of the Hon'ble Supreme Court, e.g., U.P. State Electricity Board v. Hari Shanker Jain, AIR 1980 SC 65; Lilavati Bai v. State of Bombay, AIR 1957 SC 521; Amar Chand Chakraborty v. Collector of Excise, AIR 1972 SC 1863; Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal, Civil Appeal No. 2050 of 2010. 41. As already stated earlier, section 206C seeks to prevent mischief, i.e., evasion of taxes in certain types of businesses. The words defining a buyer as "a person who obtains in any sale, by way of auction, tender or any other mode ....." in Explanation (aa)(i) are plain and simple in their meaning and content. The buyer is one who obtains specified goods "in any sale" which could be by way of auction, tender "or any other mode". The use of the word "or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso inserted in sub-section (6A) of section 206C with effect from 1.7.2012 according to which any person, other than a person referred to in sub-section (1D) of section 206C, responsible for collecting tax in accordance with the provisions of this section, who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee shall not be deemed to be an assessee in default in respect of such tax if such buyer or licensee or lessee (i) has furnished his return of income under section 139; (ii) has taken into account such amount for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person responsible for collecting tax at source furnishes a certificate to this effect from an accountant in such form as may be prescribed, which, according to Rule 37J of the Income-tax rules, shall be furnished in Form No. 27BA. The aforesaid proviso relaxes the rigours of consequences flowing from non-collection of tax at source if the conditions stipulated by the said proviso are fulfilled. 43. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. First Proviso inserted in sub-section (6A) of section 206C seeks to achieve three-fold objectives. One, it seeks to (1) ensure that there is no loss to the Revenue, i.e., (i) the buyer has furnished his return of income u/s 139, (ii) the buyer has taken into account such sum on which tax was required to be collected at source u/s 206C for computing income in such return of income, (iii) the buyer has paid the tax due on the income declared by him in such return of income, (iv) the payer, i.e., the person responsible for collecting the tax at source u/s 206C, has furnished a certificate in Form No. 27BA confirming the aforesaid; (2) rationalize the provisions relating to collection of tax at source; (3) provide relief to the collector of tax at source from the consequences of non/short deduction collection of tax at source and to that extent it is a beneficial provision. 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 1.7.2012. 45. In CIT v. Chandulal Venichand, 209 ITR 7 (Guj.), the issue before the Hon'ble ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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