TMI Blog2016 (3) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... factured or different items. In the case of a by-product, it has its own market value and can be used as such. In view of above, we find that the CIT(A) was justified in holding that the Assessing Officer has erred in categorizing DOC as scrap within the meaning of Explanation to Section 206C. Regarding the raw cotton being treated as scrap we find raw cotton is only a part of raw material which is of lower quality (lower count cotton) from which the thin yarn cannot be manufactured such thick quality cotton was separated at the initial warehousing stage and sold off to other yarn manufacturers including that for export. So, the CIT(A) was justified in holding that such raw cotton does not arise from manufacturing or mechanical working as it is merely a segregation of raw material as was pointed out by the assessee. Therefore, these reasoned finding of the CIT(A) need no interference from our side, which is confirmed. Regarding Maize Husk (Fiber)percentages of husk as a by-product is close to 10% and it is mainly used in poultry farm, animal food and pharma industries. Since maize husk fiber is itself subjected to various manufacturing stages and as enormous economic value, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passing the order he has completely violated the Rule 46(A) hence his order is null and void, 2. The Ld. CIT(A) has erred on facts and in law in deleting the additions made u/s. 206C(6)/206C(7) of the I.T. Act on non collection of TCS of ₹ 8,16,68,350/- on sale of DOC (de-oiled cake), maize husk and cotton waste inspite of the fact that those items were scrap as defined u/s 206(c). 3. The Ld. CIT (A) has erred on facts and in law in holding that the above items were by products and there by failed to appreciate that even by products like Molasses and bagasses have been held as scrap within the definition of scrap u/s 206(c) as the definition is of wider import to cover even by product within it's sphere. 4. The Ld. CIT(A) has erred on facts and in law in deleting the addition made u/s 206C(6) / 206C(7) by wrongly relying on the I.T.A.T decision in the case of Navin Flourine Industries vs. A.C.I.T, TDS Circle in I.T.A. No. 1213 1214/Ahd/2010 because the facts of the assessee's case were distinguishable and also no appeal was filed against that case due to monetary limit and the decision cannot be followed as precedent. 5. The Ld. CIT(A) has erred on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sst.Year 2011-12 Asst, Year 2012-13 Total Bio Himmatnagar Maize Husk 8.05 11.24 7.47 2.13 28.89 Bio Uttaranchal Maize Husk 0.99 4.64 6.48 2.58 14.6 Cotspin Himmatnagar Cotton Waste 20.56 27.44 30.69 11.26 89.95 DOC All Units DOC 533.63 303.69 413.36 65.54 1316.22 Total 566.23 347.01 458.20 81.51 1452.75 4.1 During the course of survey, statement of Shri N. Giridhar, CFO was also recorded, inter alia, he submitted that the assessee-company has neither collected TCS on sale of cotton waste, maize husk and DOC. It was further submitted that no declaration in form No. 27C was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, various value added derivatives are produced viz. liquid glucose, dextrose, maltose, etc. Packing material/gunny bags are scrap/waste or not? As per the provisions of the Act, meaning of the scrap as provided in Explanation (b) to Section 206C of the I.T.Act, packing material like gunny bags, tins, SS Plastics Drums, Plastic bags, etc. are not covered under the definition of waste and scrap. Further, it is submitted that appellant was not manufacturing any of these materials. It is further submitted that packing materials are purchased by the company which is used for packing the finished goods in local as well as in export market as per the requirement of the buyer. The damaged packing material/gunny bags, which are of no use are sold out by company as defective. Thus, such items are not generated from manufacturing/mechanical working as required in the definition of scrap, the said fact and position of law is clarified by the Hon'ble ITAT, Ahmedabad in the case of Navin Fluorine International Ltd. Maize Husk (Fiber) is scrap/waste or not? In the maize processing plant, maize seeds are processed and the products viz. maize starch, gluten, germs, fiber (husk) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e oil also is further processed and refined, from which further two products are generated namely, refined Oil and Gums. From processing seeds, approximately 82-84% of DOC and 16-18% of Oil is generated. Thus, DOC is a product manufactured and it is a saleable product and it is not a scrap or waste. 4.2 The Assessing Officer rejected the contention of the assessee primarily on the ground that the aforesaid items were of the nature of scrap and the assessee as well as its buyer was covered within the definition of seller and buyer respectively as provided in Section 206C of the Income-tax Act. The Assessing Officer rejected the contentions of the assessee vide para-8 of his order which is reproduced herein as under, for the sake of convenience:- In the instant case, the De-Oiled Cake (DOC) as admitted by the assessee is mainly used as animal feed is not sold to the actual user i.e. the animal keepers. The fact is that DOC is sold to other traders or intermediates who in turn sales it to the actual users because De-Oiled Cake (DOC) is of no use to the traders as such. Similarly, Cotton Waste and Husk were also sold to other traders/intermediatories. As alternative argument, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that by-products and thereby failed to appreciate that even by-products like molasses and bagasses have been held as scrap within the definition of scrap u/s 206(C) as the definition is of wider import to cover even by-product within it's sphere. He also submitted that the CIT(A) erred in holding that the addition made u/s 206C(6)/206C(7) by wrongly relying on the decision of ITAT in the case of Navin Fluorine International Ltd. vs. ACIT in ITA No.1213 1214/Ahd/2010, because the facts of the assessee's case were distinguishable and also no appeal was filed against that case due to monetary limit and the decision could not be followed as precedent. Besides, the ld. Departmental Representative relied on the detailed statement of facts filed before us, inter alia, submitting that the assessee-company is manufacturer and exporter of Agro waste products. In the case of assessee a survey u/s 133A of the Act was carried out on 09.08.2011 and during the course of survey, it was noticed by the Assessing Officer that the assessee-company was mainly engaged in extraction of solvent from soya seeds, mustard seeds, castor seeds, cotton seeds, etc. On processing of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4.2 Regarding the law relied upon by the CIT(A) in the case of Navin Fluorine International Ltd. vs. ACIT in ITA No.1313 1214/Ahd/2010, wherein it was held that the scrap and waste should arises generated from manufacturing and mechanical working of materials. In this regard, ld. Departmental Representative submitted that the so called by products which has been treated as scrap and waste by the Assessing Officer were certainly generated from manufacturing process of the agro products of the assessee. Hence on the contrary, the Department stands get support from this decision also as all the so called by products were generated from manufacturing process of the assessee. Further the CIT(A) relying on the case of Navin Fluorine International Ltd. (supra) observed that such scrap should not be definitely usable as such. According to the Departmental Representative, this observation is also strengthens the stand of the department because the so called by products could not be definitely usable as such like the raw material which was used in the process of manufacturing for example. De Oil Cake cannot be used as raw material and also no oil will come out from DOC by inputting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts obtained from the activity and constitute sizeable chunk of production done by ship breakers. Though such products may be commercially known as scrap they are not waste and scrap , as such items are usable as such, and, therefore, do not fall within the definition of scrap as envisaged in the Explanation to section 206C(1) of the Act. 7. Section 206C of the Act bears the heading, Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc. and provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax. The nature of goods specified at serial No.(vi) is scrap, and the percentage provided is 1%. The expression of scrap is defined under clause (b) to the Explanation to section 206 of the Act, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial question of law warranting interference. The appeal, therefore, fails and is, accordingly, dismissed. Thus, the Authorized Representative for the assessee submitted that ratio in Priya Blue Industries Pvt Ltd supports the order of the CIT(A). 5. After going through the rival submissions and perusing the material on record, the remand report and the case laws as relied upon by the assessee, we find that the issue before us for adjudication is whether the DOC, cotton waste and maize husk is to be treated as 'scrap' or 'waste' within the meaning of definition provided in Section 206C of the IT Act. Section 206C reads as under:- Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. 206C. (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold. 5.1 With respect to 'scrap' as in section 206C, the Hon'ble ITAT, Ahmedabad happens to clarify the definition of scrap in the case of Navin Fluorine International Ltd. Vs. ACIT, 14 ITR 481 (Ahmedabad). The main portion of this judgement is reproduced herein as under: 10. The Hon'ble Delhi High Court in the case of CIT vs. Deep Chand (2002) 176 CTR (Del) 239 : (2002) 257 ITR 756 (Del) relied upon the decision of the Hon'ble Supreme Court in the case of Gurudevdatta VKSSS Maryadit vs. State of Maharashtra AIR 2001 SC 1980 in which it was held as under : It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. Thereafter, the word used is which is definitely not usable. The word is as used in this definition of the scrap meant for singular item i.e., waste and scrap . The word waste which is denotes to singular item and thus the singular item would be waste and scrap. The words waste and scrap thus cannot be read differently as is argued by the learned Departmental Representative. The list of scrap sold by the assessee is reproduced above which are not connected with manufacture or mechanical working of material. The findings of the learned CIT(A) are based on presumption only that since the assessee is engaged in manufacture of fluorine and other refrigerant gases, therefore, entire scrap is generated out of its manufacturing activities. The findings of the learned CIT(A) are not based on any material or evidence. The assessee is admittedly engaged in manufacturing of fluorine and other refrigerant gases and list of scrap items noted above would indicate that same cannot be used for manufacturing or mechanical working of material of fluorine and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s usable as such. As a corollary, the by-products generated from manufacturing process are not covered in above definition since same could be as such by other consumers. To elaborate, perusal of manufacturing process of DOC amply testifies that the entire manufacturing process is designed to obtain two main products which are usable as such, namely, oil and DOC. This DOC which is high in protein content is used as a fertilizer or chicken feed or cattle feed. This DOC also is pass through various other manufacturing stages to suit the customers as is required by them. The enormous economical value of DOC is testified by the fact that more than 80% is generated and out of such generation, around 90% is exported to different countries. All the aforesaid facts indicate that DOC is a by-product and it certainly cannot be categorized as scrap and waste and it has its own market value. Generally, the scrap is either thrown out or sold at cheaper rate because it cannot be used as raw material for manufactured or different items. In the case of a by-product, it has its own market value and can be used as such. In view of above, we find that the CIT(A) was justified in holding that the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. In this background, we find that the raw material itself is segregated. The separated raw cotton, which cannot put into manufacturing for the production of cotton yarn, is sold off as raw cotton. The percentage of so called 'cotton waste' as a result of this segregation was as high as 41% and constitute substantial sale as was pointed out by the assessee. The ratio of raw cotton sale against the cotton purchase under various yields is tabulated as under: Fin. Year Cotton Purchase Cotton Waste Sales %of Cotton Waste Sales Qty(MT) Amount (Rs.) Qty (MT) Amount (Rs) 2008-09 15805.291 1055687632 5005.368 205652575 31.67 2009-10 23114.147 1530877054 5057.117 2743958B9 21.88 2010-11 10627.443 1188750768 4429.826 306810133 41.68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount. Before the Assessing Officer, the assessee made detailed submissions which are reproduced as under:- Port charges and applicability of Sec 194C/194J In this regard, we would like to inform to your good self that we appointed C F agents at various ports from where we are exporting/importing goods from to India. Before entering into business with these agents, appellant Company entered into an agreement with these agents which comprises of following factors:- a) Receiving the goods from the factories or premises of the principal or his agents; b) Arranging of Labourer for doing various works at port various warehouses. c) Warehousing these goods at port: d) Receiving dispatch orders from the principal; e) Arranging dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal; f) Maintaining records of the receipt and dispatch of goods and the stack available at the ports- g) Preparing invoice on behalf of the principal. h) Submitting of various documents on behalf of principal with Custom Authorities. i) Payment of warfare, demurrage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood self, it is further submitted that the C F Agents are providing helping services at ports, in the organized way, it does not mean that they are profession like doctors, chartered accountants, engineers, etc. the Act also very dearly defines the status of clearing and forwarding agent as independent contractors and thus, the payments to clearing and forwarding agents, and the TDS deducted u/s. 194C is as per provisions of the Act and with reference to circular issued by CBDT. Assessee company has furnished the specimen invoices of CHA parties for reference in Annexure (1-17) vide letter dated 14-11-2011 interalia, stating we once again submit that Clearing and Forwarding Agents are contractors and not professions. Their status also is defined as independent contractors and thus payments to them attract TDS as per the provisions of Section 194(C) of the Act 6.1 The Assessing Officer rejected the contention of the assessee by observing that the assessee has taken a very narrow meaning of the term 'professional services'. According to the Assessing Officer, the professional services defined in income-tax act were only indicative and not exhaustive. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been deducted on such payment under section 194J - Whether since payment made by assessee to agent was for services relating to storage, dispatch, transportation, loading and unloading of goods etc., assessee had rightly deducted tax at source under Section 194CHeld, yes, - Whether, therefore, lower authorities were not justified for treating services rendered to assessee as falling under section 194J- Held, yes Circulars and Notifications -CBDT Circular No. 720, dated 30-8- .. (judgement in para 7) It was crystal clear from the terms of the agreement that the payment made by the assessee to the C F agent was for consolidated set of services. The main object of the agreement was to ensure correct handling and delivery of goads as per the terms of the assessee. As per the nature of services rendered, the same was in pari materia to the services as contemplated under section 194C, and the same was not for any professional or technical services as mentioned under section 194J. [Para 6) It is crystal dear from the provisions of section 194J that services of the agents are neither professional services, nor technical services. Such services are als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F agents, the assessee has deducted TDS u/s 194C or at a lower rate if such C F agent has provided certificate of tax deduction at source at lower rate issued by their respective Assessing Officers. For example, for AY 2008-09, the detailed breakup of port charges is evident from the details narrated as under:- Vendor Name Nature of Service Total Amount TPS Amount PESTALERT CHEMICALS PVT LTD FUMIGATOR 571,117 12940 CONTAINER MOVEMENT (BOM) TRANSPORT SHIPPING LINE AGENT 22,390 516 MARINE CONTAINER SERVICES (I) P LTD SHIPPING LINE AGENT 56,497 1,280 DIGRANI SHIPPING S LOGISTICS TRANSPORTER 701,498 15,898 KOTAK GLOBAL. LOGISTICS LTD TRANSPORTER 16,533,328 76,831 SEATRANS LOGISTICS TRANSPORTER 2,885,168 65,380 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BENCHMARX LOGISTICS SOLUTIONS P,LTD TRANSPORTER 90,127 2,042 GRAND TOTAL 125,049,423 2,104,765 BREAK-UP OF PAYMENT TO C F AGENTS I.E.. REIMBURSEMENTS AND AGENCY CHARGES NAME OF C F AGENT REIMBURSEMENTS AGENCY CHARGES TOTAL ASHAPURA FORWARDERS PVT LTD 3,808,202 1,555,849 5,364,051 KHIMJI POONJA FREIGHT FORWARDERS PVT. LTD, 3,231,357 3,006,252 6,237,609 S RAMDAS PRAGJI FORWARDERS PVT LTD 28,476,689 1,049,433 29,526,122 LILADHAR PASOO FORWARDERS P LTD 3,105,067 785,561 3,890,628 TOTAL 38,621,314 6,397,095 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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