Empty Liquor Bottles Can't Be Included In Scrap, TCS Not Applicable: Madras High Court

The Madras High Court has held that empty liquor bottles cannot be included in scrap, and TCS is not applicable.

The bench of Justice C. Saravanan has observed that the petitioner is neither the owner of the bottle nor generates scrap as is contemplated under the Income Tax Act, 1961. The activity of opening and uncorking is not a “mechanical working of material." Therefore, the invocation of Sections 206C, 206CC, and 206CCA of the Income Tax Act, 1961, was wholly misplaced and unwarranted under the circumstances against the petitioner for the alleged failure to collect tax at 1% on 99% of the license fee payable to the government and 1% retained as agency commission.

The petitioner/assessee sells liquor in its retail shops as per the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. The assessee has challenged the order by which it was held that the assessee ought to have collected “Tax Collected at Source” (TCS) on the amounts tendered by the successful bar licensee towards tax from the sale of empty bottles by treating the sale of bottles as scrap.

The issue raised was whether the petitioner was required to collect TCS from the bar licensees, who have been licensed to run bars under the license issued to them under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003, under Section 206C of the Income Tax Act, 1961.

The assessee contended that it is not engaged in the manufacture or generation of waste from the mechanical working of materials from which scrap has arisen. The petitioner is merely selling liquor in its retail shops. The empty liquor bottles left by the consumers are in the bar and not the property of the petitioner, and in any event, they were not sold by it. It would not come under the purview of the definition of “scrap” in Explanation to Section 206C of the Income Tax Act, 1961.

The assessee urged that, after effecting sales, the petitioner has no right over the liquor bottles. The petitioner has merely given the license to the independent bar contractors through a tender to collect the empty bottles left by consumers in the bars, which are actually sold by them on their own rights and not on behalf of the petitioner.

The department contended that there is no condition stipulated in the G.O. dated March 29, 2013, directing TASMAC to collect 99% of the license fee, favouring the state government separately. Therefore, it is the responsibility of TASMAC only to collect the entire tender amount and remit it to the government. The liability to collect TCS on the entire license rests on TASMAC.

The court held that there is neither a “manufacture” nor a generation of “scrap” from “mechanical working of materials," and the liability under Section 206C of the Income Tax Act, 1961, is not attracted.

Counsel For Petitioner: R.Vijayaraghavan

Counsel For Respondent: Dr.B.Ramaswamy

Case Title: M/s.Tamil Nadu State Marketing Corporation Ltd. Versus DCIT

Citation: 2023 LiveLaw (Mad) 413

Case No.: W.M.P.Nos.18539, 18685, 18774, 19050, 19048, 19070, 19081 & 19516 of 2023

Click Here To Read The Order