TMI Blog2019 (9) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tendu leaves in this case may qualify for the purposes of trading or sale, but not for the utilization for the purposes of manufacture of bidis. Section 11 of the Regulation of Trade Act deals with the registration of the manufacturer of finished goods using the forest produce, who has to get himself registered with the concerned Department of the State Government in a manner provided under Rule 9 of the Rules framed under the Regulation of Trade Act. It is not the claim of the petitioner-association that they are also the manufacturers of bidi and the Tendu leaves purchased by them from the Forest Department of the State Government are processed for utilization in the process of manufacture of bidi. It is not an integral part of the process of manufacture of bidi. It is thus clear that unless the members of the petitioner-association get themselves registered as the manufacturers of bidi under Section 11 of the Regulation of Trade Act, it cannot be said that they are utilizing the processed Tendu leaves for the purposes of manufacture of bidi. The expression processing under sub-section (1A) will have, therefore, to be necessarily understood as an intermediary process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of licence executed, which include the taxes as are leviable from time to time. 5. The contractor appointed as agent or licensee pursuant to the auction conducted is required to process the Tendu leaves. Several steps in the process are stated as under : (a) The first step is of the pruning, which is the process of cutting of small Tendu bushes of medium girth from the ground level to have healthy Tendu plant, which would provide good quality leaves. (b) After 50 to 60 days of pruning, the process of plucking of leaves starts and the plucked leaves are bundled into 70 leaves each and are tied with the strings in the roots of Palash Tree (Butea Monosperma). (c) The next step is of drying of leaves and then sprinkling of water on the bundles. (d) Then the bundles of Tendu leaves are carried to the collection centre where the process of drying and weathering of Tendu leaves takes place in a particular manner. (e) The bundles are then kept at the distance of 1 2 inches for drying and the insecticides are sprinkled on the bundles to save them from insects or termites. (f) Then the bundles are exposed to sun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in any change in the product and, therefore, merely drying, sprinkling of water, bundling of the Tendu leaves, etc., cannot be equated with processing. As a result, it is clarified that the provisions of Section 206C of the Income Tax Act shall be applicable to the case of the Tendu leaves traders, as the exception carved out in the proviso to sub-section (1) of Section 206C is not applicable. The earlier letter dated 23-1-1989 was withdrawn. 8. The petition, therefore, challenges the circular dated 10-1-1996 and further the communications dated 29-11-2018 and 27-12-2018 issued by the Joint Commissioner of Income Tax and the Deputy Conservators of Forests, Bramhapuri and Gadchiroli Divisions, reiterating the same position. The petitioner claims that the contractors of the Tendu leaves, who are the members of the petitioner-association, are entitled to exemption under sub-section (1A) of Section 206C of the said Act while purchasing the Tendu leaves from the Forest Department of the State of Maharashtra. 9. Section 206C of the Income-Tax Act, 1961 is under Part BB of Collection at source under Chapter XVII of the said Act regarding collection and recovery of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor from the buyer of any goods of the nature specified in column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003. (1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. 9.1 Sub-section (1) of Section 206C of the Income Tax Act creates a statutory liability upon every person, being a seller, to collect from the buyer of any goods of the nature specified in column (2) of the Table below it, a sum equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in cases where the goods specified in column (2) of the Table below sub-section (1) are sold to be utilized for the purposes of manufacturing, processing or producing the articles or things and not for trading purposes. Till 10-1-1996, i.e. the impugned action, no tax was collected at source under sub-section (1) of Section 206C of the said Act by the Forest Department of the State Government from the members of the petitioner-association at the time of sale of unprocessed Tendu leaves under the impression that the exemption under sub-section (1A) therein is available. 12. The provision of sub-section (1A) of Section 206C of the Income Tax Act, at the outset, rules out the availability of exemption where the processed goods are sold for utilization or for the purposes of trading or sale to the manufacturer or producer of different articles or things therefrom. In our view, such cases would, therefore, be covered by sub-section (1) only, under which the tax is to be collected at source, and failure to collect such tax would attract the penal consequences as are provided under Section 271CA of the said Act. Not only that, if the exemption granted to undeserving and ineligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing into some different product so as to qualify for grant of exemption under sub-section (1A) of Section 206C of the Income Tax Act. 16. Now we proceed to deal with the contentions advanced. The first contention being that the Tendu leaves purchased from the Forest Department of the State of Maharashtra are processed so that it can be utilized for manufacture of bidi, it is covered by the word processing employed under sub-section (1A) of Section 206C of the Income Tax Act. Shri Kaptan does not dispute that the identical process carried on the Tendu leaves was considered in decisions of several High Courts deciding the question as to whether the exemption under Section 206C of the said Act can be made available and those decisions are (i) CIT v. Ashwin Kumar Gordhanbhai and Bros. Pvt. Ltd., reported in [1995] 212 ITR 614 (Gujarat); (ii) North Koel Kendu Leaves Mahulam Leaves v. Union of India, reported in [1997] 228 ITR 630 (Patna); (iii) Abdul Sattar v. Union of India, reported in [1998] 230 ITR 163 (Madhya Pradesh); (iv) Natwarlal v. Union of India, reported in [1998] 233 ITR 490 (Madhya Pradesh); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sers and traders in the forest produce, namely, Tendu leaves from the Forest Department of the State Government. The purchasers and traders of Tendu leaves stand excluded from the exemption under sub-section (1A) of Section 206C of the Income Tax Act. 19. It is urged that several decisions of the High Court cited above on the question of exemption under Section 206C of the Income Tax Act follow the decision of the Apex Court in the case of Chowgule Co. Pvt. Ltd., cited supra. According to him, the ratio of this decision of the Apex Court has been misconstrued. He submits that the decision of the Apex Court in fact operates in favour of the petitioner, holding that what is necessary in order to characterize an operation as processing is that the commodity must, as a result of the operation, experience some change, which does not necessarily bring into existence a different product, like bidi. The distinction made by the Apex Court between the manufacture and processing has been ignored. 20. We have gone through the decision of the Apex Court in Chowgule Co. s case , cited supra. The claim in the said decision was for lower rate of 3% of sales tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal and chemical composition; and (vii) blending of the ore from different stockpiles with a view to producing ore of the required specifications and loading it into the ship by means of the mechanized ore handling plant. 23. In Para 4 of the said decision, the Apex Court primarily considered two questions (i) whether the blending of ore whilst loading it in the ship by means of the mechanical ore handling plant constituted manufacture or processing of ore for sale within the meaning of Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Rules framed thereunder, and (ii) whether the process of mining, conveying the mined ore from the mining site to the riverside, carrying it by barges to the Marmagoa harbour and then blending and loading it into the ship through the mechanical ore handling plant constituted one integrated process of mining and manufacture or processing of ore for sale, so that the items of goods purchased for use in every phase of this integrated operations could be said to be goods purchased for use in mining and manufacturing or processing of ore for sale falling within the scope and ambit of Section 8(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me change which does not necessarily bring into existence a different produce, like bidi, relied upon by Shri Kaptan are made in the background that the Court was considering the eligibility criteria for lower rate of sales tax under Section 8(3)(b) of the Central Sales Tax Act, interpreting the expression processing of goods for sale , which means making a commodity marketable by experiencing some change, as is distinguished from the process of manufacturing, which actually brings into existence a commercially different and distinct commodity by different name. In our view, such observations of the Apex Court would be of no help to the petitioner on the question of process of manufacturing. 26. We would also like to deal with the language employed under sub-section (1A) of Section 206C of the Income Tax Act in the light of the intention of the Legislature in granting such exemption. Once the availability of exemption, where the goods are processed for the purposes of trading or selling to the manufacturer or producer of different articles or things therefrom, is ruled out under sub-section (1A), the intention of the Legislature becomes clear to understand the word proce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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