TMI Blog2009 (2) TMI 502X X X X Extracts X X X X X X X X Extracts X X X X ..... s are of the third parties and they have their own labour force with all the infrastructure. Not only the cost of raw material has to be incurred by the manufacturers but 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. It is not as if the manufacturers had done some process or added the value to the material supplied by the assessee. On the contrary it is a case where the manufacturer has produced the goods at its own, though subject to the assessee s specifications, supervision and control and later on sold such goods to the assessee. The property in goods passes over to the assessee only when such goods were manufactured and delivered to it. We find that there is complete identity of facts with those considered by the Hon ble jurisdictional High Court in the case of BDA Ltd. v. ITO (TDS) [ 2004 (3) TMI 11 - BOMBAY HIGH COURT] inasmuch as that the goods were manufactured by the manufacturers in their own establishments, albeit in accordance with the specifications of the assessee. The raw material cost and other ancillary costs were also incurred by the manufacturers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above official, the Assessing Officer opined that the assessee had entered into contracts with the manufacturers and payments were liable for deduction of tax at source under section 194C of the Act. On show-cause notice, the assessee replied that the third parties carried out manufacture of goods in their own rights, risk and liabilities. It was further stated that excise duty and sales tax was paid by them at their own and further the raw materials were purchased by the third party manufacturers. The Assessing Officer observed that there was a specific clause regarding the manufacturing procedure, SOP (Standard Operative Procedure), confidentiality and secrecy and trademarks etc. On a representative basis he took up agreement with M/s. Mahaan Health Care for consideration. Relevant clauses from this agreement have been extracted at pages 4 and 5 of the assessment order. He thereafter summarized the salient features of the issue as under:- 1. The manufacturer shall manufacture the product at its unit by using the formulation provided by the assessee-company and as per the specification and the quality required by the assessee. 2. As per the company s instructions the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 191 introduced with effect from 1-6-2003, the learned CIT(A) held that the demand raised under section 201(1) was invalid. About the chargeability of interest under section 201(1A), he held that such provisions are mandatory. However, a direction was given to the Assessing Officer that the interest under section 201(1A) be restricted to the date of payment of tax by the payee by way of advance or self-assessment tax and not up to the date of passing of the orders by the Assessing Officer. Both the sides are in appeal against their respective stands. 5. Before us the learned counsel for the assessee contended that the learned CIT(A) was not justified in holding that the provisions of section 194C were attracted. He referred to the copies of the Manufacturing and Supply Agreements with these parties to bring home the point that the third parties (manufacturers) had their own licences, authorizations and permissions as per law and they manufactured the medicines on behalf of the assessee as per the strict requirements given to them. He further referred to clause 2 of the Supply Agreement for contending that the assessee was to provide annual minimum volumes for each quarter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 any work. The expression work has been defined in Explanation III to this section in an inclusive manner to include advertising; broadcasting and telecasting including production of programmes; carriage of goods and passengers and catering. The list given in this Explanation is not exhaustive but inclusive. It has been done so with a view to include any payment within the purview of this section which is for carrying out any work. The natural corollary which fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 7, which is relevant for 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 article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r undertakes to supply any article or thing fabricated according to the specifications given by the Government or any other specified person and the property in such article or thing passes to the Government or such other person only after such article or thing is delivered the contract will be a contract for sale and hence outside the scope of this section. Adverting to the facts of the instant case we find that the assessee placed orders with the manufacturers for manufacturing the medicines strictly according to its specifications but the property in such goods passed to the assessee only after these were delivered to it. When the manufacturers were making the purchases at their own and incurring other input costs, the product so manufactured was their own till it was delivered to the assessee. Suppose during the course of manufacture some wrong raw material is used or due to any other reason the finished product does not come up to the specifications of the assessee, such was the loss of the manufacturer. It is only when the medicine is manufactured according to the assessee s specifications and delivered to it that the property in goods can be said to have passed to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract for supply of any article or thing as per the prescribed specifications only if it is a contract for work and not a contract for sale as per the principles in this regard laid down in para 7( vi ) of Circular No. 681, dated 8-3-1994 . In an earlier para we have elaborately dealt with clause ( vi ) of para 7 of Circular No. 681 and has found that the case of the assessee is not covered within the parameters laid down for application of section 194C as it is a contract for the sale of goods and not for processing of goods supplied by it. We have further found that the property in medicines passed over to the assessee only after these were delivered to it and not before that. Hence these are only contracts for sale of goods and not works contracts. 12. The Hon ble Bombay High Court in the case of BDA Ltd. v. ITO (TDS) [2006] 281 ITR 99 considered a case in which supply of printed labels by an independent establishment to that assessee as per its specifications by using its own raw material and carrying out the printing work in its own premises, came up for adjudication. In this case M/s. BDA Limited had a distillery at Aurangabad and it purchased materials required for bottling ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
