TMI Blog2009 (3) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... t are in the nature of contract of sale and not a contract for work. (3)The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in holding that interest under section 201(1A) should be levied on the appellant for non-compliance of provisions of section 201(1) of the Act. (4)The appellant craves leave to add, alter modify and/or delete any of the above ground of appeal. 2.1 In first ground of appeal not pressed by the AR of the assessee. Therefore, first ground of appeal is dismissed as not pressed. 3. The second ground of appeal is relating to provision of section 194C of the Income-tax Act, 1961. The facts are in brief that the assessee is a public limited company is engaged in the business of manufacturing and marketing drugs and pharmaceutical products. A survey under section 133A of the Act took place at the office premises of the assessee on 23-3-2006. During the course of survey, it was found by the Department that the assessee s company manufactured pharmaceutical products in its own units as well as gets the products manufacturing from other parties termed as Third Party, manufacturers for which the assessee entered into an agreement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried the matter in appeal. 9. The learned Counsel for the assessee has submitted before the CIT(A) that the assessee has entered into agreement with third parties who are having their own establishments for the purpose of manufacture of pharmaceutical products. The agreements entered by the assessee reveals that the agreements were only for the purpose of contract of sales not works contract. The assessee was not supplied only raw material to the third parties, the Sales Tax, excise duty paid by third parties only. 10. The ld. CIT(A) after considering the submissions of the ld. AR of the assessee has held that it is an established fact under position of law that there is no conclusive factor under principle which can be universally applied, as to ascertain, the true nature of transaction, whether is a sale of goods or one of the contract. It has to be decided depending on the facts and circumstances of each of the transactions. The distinction between the contractor and the labour, and contract for sale on goods is neither given in the Act nor under the Rules. But the Hon ble Supreme Court in the case of Sentinel Rolling Shutters Engg. Co. (P.) Ltd. v. CST AIR 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacturers are producing an item product merely on the basis of some specification given by the purchaser. Therefore, I am in agreement of the Assessing Officer that "the very object of the agreement was to permit the manufacturers to manufacture the products on behalf of the assessee company. Thus, it is evident that the predominant intention of the assessee company was to meet the overwhelming demand of pharmaceutical products under the brand and trade mark of the assessee company over and above its capacity production, by getting the same manufactured by third party manufacturers, by entering into manufacturing agreements as per the terms and conditions suitable to the assessee company. Thus the purchases made in terms of manufacturing agreement of manufactured pharmaceutical goods from the third party manufacturers cannot be considered and termed merely as purchase of goods with some specifications. 13. The ld. CIT(A) insofar as reliance is placed on the Circular No. 681 is concerned, he has held the above circular no application of the facts of the case. Moreover, the Circular itself vide clause ( c ) is clarified that in the case of doubt whether a particular con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the third party (manufacturer) have their own licences, authorizations, and permission as per law and they manufacture the medicines on behalf of the assessee as per the specifications given by him. He further referred to supply agreements dated 18-5-2005 clauses 1.1, 1.2, 1.6 (page No. 91 of the Paper Book), clause 2.2 (page 92 of the Paper Book), clause 3.6 (Page 93 of the Paper Book) clause 6.2 (Paper Book page No. 96) clause 9.2 (Paper Book Page No. 98). As per the clauses pointed out by the assessee s Counsel, the manufacturer shall manufacture the said products under the trade mark of the company and or such other trade marks as may be specified by the company from time to time yet its undertaking or elsewhere as approved by the company in such quantity from time to time as the company may specify in this behalf. The said products as specified in Schedule I shall be manufactured by the manufacturer as per the Good Manufacturing Practice (GMP) approved by Food Drugs Authorities hereunder and strictly as per the technical information and data, standard specifications intimated by the company time to time (clause 1.1). The manufacturer shall sell to the company and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submissions were the reiteration of the reasoning recorded by the lower authorities in not accepting the assessee s claim. He referred to various parts of the impugned order in support of his arguments. 18. We have heard both the sides and perused the materials on records and orders of the lower authorities below. Section 194C provides that "any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor ) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and . . . .( d ) any company . . . .shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to.. . . .of such sum as income-tax on income comprised therein. A bare perusal of this section reveals that the liability has been cast on any person who is paying any sum to any resident "for carrying out any work". Thus it is clear that the obligation to deduct tax at source under this section arises when a payment is made for carrying out a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice contracts. Para 7 of the circular states that the service contract would be covered by the provisions of the section since service means doing any work as explained above clause 6 of para 7, which is relevant our purpose reads as under: "( vi )The provisions of this section will not cover contracts for sale of goods ( a )Since contracts for the construction, repair, renovation or alteration of buildings or dams or laying of roads or airfields or railway lines or erection or installation of plant and machinery are in the nature of contracts for work and labour, Income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor. ( b )Where, however, the contractor undertakes to supply any art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has simply placed the orders for the manufacture of medicines according to its own specifications and all other relevant decisions for the manufacturing have been left to the wisdom of the manufacturer. The assessee only interested in the output coming of to its standard. How that output is achieved is the job of the manufacturer. Simply because the assessee monitor the manufacturing process it does not change the character of the transaction. When the manufacturers have their own establishment and their labour force, the raw material purchased by themselves, even the excise duty is also paid by them directly. Further when such manufacturers make the sale of such goods to the assessee the sales tax is also paid by them. Ultimately the manufacturers manufacturing the product by their own subjected to assessee s specifications supervision , control and later on sold such goods to the assessee. The property in goods passes over to the assessee only when such goods are manufactured and delivered to it. Hence, these are only contract for sale of goods and not works contracts. 22. The Hon ble Bombay Court in case of BDA Ltd. ( supra ). In this case BDA Ltd. ( supra ) had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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