Sale Of Scrap By Trader, Not Engaged In Any Manufacturing Activity, Will Also Attract TCS: ITAT

The Bench of Judicial Member Suchitra Kamble, after referring to the Circular No. 18, dated 21.05.2012, issued by the CBDT, held that for the applicability of TCS on sale of scrap, there is no requirement that the goods from which the scrap arose should be produced or manufactured by the seller himself. Hence, it laid down that the liability to collect TCS is not restricted to the manufacturer of goods and that it extends to the trader as well.

A show-cause notice was issued to the assessee- Umeshkumar Harilal Shah, proposing to pass an order under Section 206C(1)/206C(7) of the Income Tax Act, 1961, for non-collection of Tax Collected at Source (TCS) on sale of scrap by the assessee, along with penalty. The assessee, in its reply to the show cause notice, averred that it was only a trader and that TCS was not applicable on the sale of scrap by the assessee, since it was not a result of any manufacturing activity carried out by it. The Assessing Officer (AO) opined that the assessee was required to collect TCS; thus, the AO passed an order, holding the assessee liable for tax on sale of scrap. Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who dismissed the appeal.

The assessee filed an appeal before the ITAT against the order of the CIT(A).

The assessee- Umeshkumar Shah, submitted before the ITAT that TCS was not applicable on the sale of scrap made by it, since it only acted as trader and was not engaged in any manufacturing activity.

The revenue department averred that the assessee sold scrap during the relevant year and had failed to collected TCS on the same. The department contended that Section 206C does not require that the "seller" of scrap must himself generate such scrap.

The ITAT noted that the assessee was not a manufacturer and that the scrap which was sold by the assessee did not arise from any manufacturing activity undertaken by it.

Referring to the Circular No. 18, dated 21.05.2012, issued by the CBDT, the Tribunal observed that for the applicability of TCS on sale of scrap, there is no requirement that the goods from which the scrap arose should be produced or manufactured by the seller itself.

Noting that the assessee had not filed Form 27C, exempting it from collecting TCS under Section 206C, the ITAT upheld the order of the AO and dismissed the appeal.

Case Title: Umeshkumar Harilal Shah versus ITO (TDS)-3, Ahmedabad

Dated: 02.11.2022 (ITAT Ahmedabad)

Representative for the Appellant/Assessee: Mr. Jinesh Shah

Representative for the Respondent/ Revenue Department: Dr. Mukesh Jain, Sr. D.R.

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