TMI Blog2013 (9) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is the assessee himself who had declared that the materials sold by him was imported by him as scrap. The AO is not required to prove facts admitted by the assessee himself. Once the assessee makes a declaration to that effect before the Government and the Government also acts upon that declaration, he is precluded from pleading otherwise before the Government. Section 115 of the Evidence Act is quite apposite. Both the authorities, namely, the AO and the CIT(A), have taken cognizance of the aforesaid declaration made by the assessee before the Customs authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of ITO(TDS) - 3, Jamnagar holding the appellant liable for default of TCS of Rs.2,61,225/- 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 learned Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mechanical working of material and therefore the brass scrap sold by him was not "scrap" within the meaning of Explanation (b) to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 a position to generate waste/scrap is not acceptable as the definition of 'scrap' reads as under:- " [(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."[Explanation (b) of Sec.206C(11)] It has two distinct limbs. Even if one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relevant for disposal of appeal. It is the case of the assessee that he could not file them before the AO/CIT(A) as they were not available with him at that time. The ld. Departmental Representative did not object to the admission of the aforesaid documents as additional evidence. They are therefore being admitted to avoid any prejudice that may be caused to the assessee due to non-admission of the aforesaid documents as additional evidence. 9. In support of both the appeals, S/Shri Rindani, Maharshi and Popat, Chartered Accountants, duly authorized by the assessee u/s 288 of the Income-tax Act have entered appearance on behalf of the assessee before this Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p" 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 usable as such because of breakage, cutting up, wear and other reasons". According to him, "waste" as well as "scrap" must arise from the manufacture or mechanical working of materials undertaken by the assessee himself in order to constitute "scrap" within the meaning of Explanation (b) to section 206C. (v) Every kind of scrap under the sun cannot be said to be covered under the definition of "scrap" as given in Explanation (b) as such an interpretation would render the later part of the definition, i.e., "from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons" otiose. He contended that any interpretation which rendered later part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 are Mariam Webster Dictionary, www.Ask.com and Wikipedia. According to him, Mariam Webster Dictionary defines scrap as "fragments of stock removed in manufacturing" and "manufactured articles or parts rejected or discarded and useful only as material for reprocessing; especially waste and discarded metals". He further submitted that the term "waste" as defined in the said Dictionary would mean "damaged, defective, or superfluous materials produced by a manufacturing process, as (1) materials rejected during a textile manufacturing process and used usually for wiping away dirt and oil cotton waste (2) scrap; (3) and unwanted bye-product of a manufacturing process, chemical laboratory or nuclear reactor toxic waste hazardous waste nuclear waste ." Relying upon the website www.ask.com, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 such scrap should not definitely be usable as such because of breakage, cutting up, wear and other reasons. Having thus explained the meaning of "scrap" as used in Explanation (b) to section 206C, he submitted that discarded materials generated on dismantling of building, as in the matter under appeal, would not qualify to be called "scrap" within the meaning of section 206C. 14. Shri Popat has also filed unsigned written submissions running into 7 sheets, which incorporate synopsis of his submissions. According to him, the provisions of section 206C would be attracted only when "scrap" was sold to a "buyer". He submitted that the sale of scrap to a person other than a buyer would not attract the provisions of section 206C. He invited our attention to the term "buyer" used in Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 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 Income-tax Act to ensure collection of taxes at source 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 prevention of evasion of taxes. In interpreting the aforesaid provisions, which are intended to plug leakage of revenue and prevent tax evasion, a construction which would defeat its purpose should be eschewed and a construction which preserves its workability and efficacy should be preferred. (ii) Provisions of section 206C are applicable to traders as well as manufacturers as there is no requirement in section 206C that the seller should be a manufacturer also. In this connection, he referred to the head-note of section 206C and other relevant provisions of the said section in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorities referred to by them at the time of hearing and also in the written submissions filed by them. The facts, as found by the Assessing Officer and the CIT(A), are that the assessee is an individual. He is an importer. It has been found by the Assessing Officer and the CIT(A) that he has imported brass scrap and sold the same to various parties in both the years under appeal. It has also been found by them that bills of entry issued by the Customs authorities, bills issued by the supplier, bills raised by the assessee and bills of landing, etc., also indicate that the assessee has imported "scrap" and sold the same as such. It is also stated in the appellate order passed by the CIT(A) that the assessee has declared imported goods as "scrap" for payment of customs duty and accordingly paid the customs duty as per the rates prescribed for scrap. It has also been found by both the AO and the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further . (7) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3): Provided that Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess requisite declaration from the buyer is obtained and a copy thereof is delivered to the Chief Commissioner or Commissioner in terms of the provisions of sub-section (1A) and (1B) of section 206C. 20. Reasons for inserting section 206C in the Income-tax Act have been explained in Circular No.525 dated 24.11.1988 issued by the Central Board of Direct Taxes as under: "1. Considerable difficulty has been felt in the past in assessing income of persons who take contracts for sale of liquor, forest produce, etc. It has been the Department's experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left of them or their members after the contract has been executed. Persons have also been found to have taken contracts in 'benami' names by floating undertakings or associations for short periods. Since tax is payable in the assessment years on the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons become untraceable. Moreover, at the time of assessment years in these cases, either the accounts are not available or they are mostly incorrect or inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act, 1961 as per Section 206C requires a seller of goods of specified nature (defined in the Act and includes scrap) to collect Tax at source at specified percentage of the receipt from the buyer and deposit the same in the Government account. The term scrap is clearly defined in the explanation to this section and there is no requirement that the goods to be eligible for scrap should be produced/manufactured by the seller itself. Further the term buyer is also defined in the same Explanation and means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the specified nature. Thus a buyer is not restricted to a person who buys the specified goods in an auction or tender and thus includes a buyer in the retail sale of specified goods as well. As per Taxation Laws (Amendment) Act 2003, w.e.f. 08-09-2003, if a buyer in the retail sale of such goods buys it for personal consumption and furnishes before the seller such declaration in prescribed Form 27C, then the Seller is not liable to collect tax on the same. Thus all Sellers of Scrap, within the meaning of Section 206C, including those trading in scrap are liable to collect tax at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or required". "Scrap", on the other hand, represents something which is left over after the greater part has been used or consumed. "Scrap" thus refers to the incidental residue derived from certain types of manufacture, which is recoverable without further processing. It is in this context that the words "from the manufacture or mechanical working of materials" qualify the preceding word "scrap" and not "waste". The definition of "scrap" as given in Explanation (b) is not limited to scrap from the manufacture or mechanical working of materials alone but extends to cover "waste" also. Therefore the scope of the term "scrap" as defined in Explanation (b) cannot be interpreted so as to restrict its application to scrap from the manufacture or mechanical working of materials alone. While "waste" covers everything that is unusable or has been discarded as no longer useful as such, "scrap" covers everything that arises from the manufacture or mechanical working of materials. By its very nature, "waste" is a term of wider import while "scrap" is narrower in its scope. 26. The first part of the definition of "scrap" in Explanation (b) refers not only to scrap from the "manufacture" bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e phrase, i.e., as "waste and scrap from the manufacture or mechanical working of materials", for the second part of the definition and therefore both of them should definitely be not usable as such because of breakage, cutting up, wear or other reasons. 27. At the time of hearing, it was submitted on behalf of the assessee that the use of the word "and" in the expression "waste and scrap from the manufacture or mechanical working of materials" suggests that both of them, namely, waste and scrap, must arise from the manufacture or mechanical working of materials and that waste per se cannot be scrap unless it, like scrap, also arises from the manufacture or mechanical working of materials. We do agree with the submission that the word 'and" in the said expression joins both the words, namely, (i) waste; and (ii) scrap from the manufacture or mechanical working of materials and to that extent they constitute one phrase, i.e., "waste and scrap from the manufacture or mechanical working of materials" and that is why the words "which is" have been used as link between the first part and second part of the definition. However, the word "and" in the said phrase has been used to enlarge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in itself brass scrap of various descriptions. The goods imported by the assessee are categorized as "copper waste and scrap" (including brass scrap) under the Harmonized Commodity and Coding Systems. In trade circles also, the goods imported by the assessee are categorized as metal waste and scrap. In Quick Car Wash Pvt. Ltd. v. Commissioner of Customs (supra), Hot/Cold Rolled Sheets of defective quality and in rusted condition were imported and therefore were not usable as such. On the aforesaid facts, it was held that the authorities were not justified in treating the said materials as not of metal waste. Relevant observations made by the Hon'ble Customs, Excise and Service Tax Appellate Tribunal in this behalf read as under: "8. Upon perusing the record and considering the submissions of both the sides, we find in favour of the appellant. It is to be noted that the consignment is of mixed dimensions, 50% of it has been found to be rusted. It has also been noted that the material is secondary/defective. Materials of this description is clearly not capable of being sold as ferrous products. Therefore, we feel that the authorities were not justified in treating the consignm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ELT 339. We have perused them. 33. Section 3 of the Central Excise Act mandates levy of duty on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985. It therefore follows that the Central excise duty cannot be levied on the goods including scrap which are not manufactured or produced in India. It is in the context of the aforesaid provision that the courts and tribunal have held, in the context of levy of excise duty, that the waste and scrap not generated from the manufacture of the prime product cannot be subjected to levy of central excise duty in the hands of non-manufacturers. This context is completely absent in the Income-tax Act and therefore the requirement that the waste and scrap must be generated by the assessee himself from the manufacture of the prime product as required by the Central Excise legislations cannot be read into the Income-tax Act. Section 206C of the Income-tax Act, on the other hand, fastens liability on a seller of scrap for collection of tax at source. There is no requirement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working of materials, which is different from manufacture. For the aforesaid reasons, it is held that tax is required to be collected at source from the buyer, in terms of section 206C, on sale of, inter-alia, scrap being waste and scrap from the manufacture or mechanical working of materials undertaken by the assessee himself or by anyone else. A seller of scrap is neither required to be a manufacturer himself nor the scope of "scrap", as defined in Explanation (b), is restricted to scrap generated from the manufacture or mechanical working of materials undertaken by the seller himself. It is sufficient for the applicability of section 206C if the person sought to be fastened with liability u/s 206C is a seller of scrap being waste as well as scrap from the manufacture or mechanical working of materials provided all other conditions for the applicability of section 206C are also satisfied. 35. In the matter under appeal before us, the assessee himself has declared the goods imported by him as brass scrap before the Customs authorities. He is therefore bound by that declaration. Once it is declared as waste and scrap under the Customs Tariff Act, it necessarily follows that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), have taken cognizance of the aforesaid declaration made by the assessee before the Customs authorities before fixing the liability on the assessee. It cannot therefore be said that the AO has not brought out any material on record to show that the material imported and subsequently sold by the assessee was "scrap". Two, we have also taken the view that the material imported and subsequently sold by the assessee was "scrap" within the meaning of Explanation (b) to section 206C. In this view of the matter, additional ground no.1 taken by the assessee in both the assessment years under appeal is dismissed. 38. Apropos additional ground no. 2, it was submitted on behalf of the assessee that the provisions of section 206C require a seller to collect the tax at source from the buyer (and from none else) on sale, inter-alia, of scrap. Our attention was drawn to the definition of "buyer" as given in sub-clause (i) of clause (aa) of Explanation to section 206C, which defines a "buyer" as "a person who obtains in any sale, by way of auction, tender, or any other mode, goods of the nature specified in the Table in sub-section (1) " It was submitted that the buyer from whom tax is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociis" is that he who cannot be known from himself may be known from his associates. Under the said doctrine, the meaning of questionable or doubtful words or phrases in a statute may be ascertained by reference to the meaning of other words or phrases associated with it: Black's Law Dictionary. Under "ejusdem generis" canon of statutory construction, where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated. The aforesaid principle however does not necessarily require that the general provision be limited in its scope to the identical things specially named. Nor does it apply when the context manifests a contrary intention. Ejusdem Generis rule is explained in HALSBURY'S LAWS OF ENGLAND thus: 'As a rule, where in a statute there are general words following particular and specific words, the general words must be confined to things of the same kind as those specified, although this, as a rule of construction, must be applied with caution, and subject to the primary rule that statutes are to be construed in accordance with the intention of Parliament. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction or tender. The Legislature has been cautious and thorough-going enough to bar all avenues of escape by using the words "or any other mode". These words (i.e., "any other mode") are not words of limitation but of extension so as to cover all possible ways in which a person (i.e., a buyer) could obtain specified goods in sale. The words "or any other mode" in Explanation (aa)(i) in section 206C are intended to cover all other modes of sales which may not come within the meaning of the preceding words, namely, auction or tender. Hence, far from using those words (i.e., "any other mode") ejusdem generis with the preceding words of the Explanation (aa)(i), the legislature has used those words in an all inclusive sense. No decided case of any court holding that the words "or any other mode" have ever been used in the sense contended on behalf of the assessee has been brought to our notice. In our considered opinion, in the context of the object sought to be achieved, mischief sought to be avoided, the language used in Explanation (aa)(i) of section 206C, and the clarity with which the legislative intent has been expressed, there is no room to construe the words "or any other mode" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him without deduction of tax, it is proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee - (i) has furnished his return of income under section 139; (ii) has taken into account such sum 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 payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payee. It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of retu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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