9911796707
TMI Blog2023 (12) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... same. 3. The petitioner has also prayed for interim stay of all further proceedings including recovery and penalty u/s.271CA of the Act pursuant to the Impugned Orders in DIN No: CHE/CT/153/1/30052023/00111 passed under Section 206C/206C (6A)/206C (7) of the Act dated 30.05.2023 for these Assessment years. 4. The impugned orders have been passed by the respondent under Section 206C, Section 206C(6A) and under Section 206C(7) of the Income Tax Act, 1961 seeking to impose tax. Provision Failure 1 Section 206C(1) Not collecting income-tax at the rate of one per cent from the buyer 2 Section 206CC Not furnishing Permanent Account number by 'collectee' 3 Section 206CCA Not furnishing the return of income for the assessment year preceding the financial year in which tax is required to be collected by 'specified person' 5. By the impugned orders dated 30.05.2023, the respondent has treated the petitioner as an "assessee in default" for failure to collect tax at source under Section 206C of the Income Tax Act, 1961 and has thus demanded tax for the aforesaid period in dispute together with interest under Section 206C(7) of the Income Tax Act, 1961. As mentioned above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to them by the seller, that is, TASMAC. 3.2. Goods of the nature specified in the Table in subsection (1) or the right to receive any such goods. By winning the tender through the bidding process, the bar contractor gets the right, inter alia, to collect and sell the empty bottles. 3.3. Buyer does not include a buyer in the retail sale of such goods purchased by him for personal consumption There is an implicit understanding that empty bottles are sold by the successful bidder and are not used for personal consumption. The successful bidder collects the empty bottles and sells them to certain vendors who ultimately sell them back to the distilleries and breweries. Additionally, the successful bidder gets the inherent right to purchase empty bottles only by way of tendering process and obtains the goods in bulk through such tenders floated by TASMAC. There is therefore, no purchase made by the successful bidder through retail sale. 4 Whether only 1% of the license fee, i.e., the agency commission accrues as the income of TASMAC? There is no condition stipulating TASMAC to collect by way of DD, 99% of the license fee favouring the State Government separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961? 12. The petitioner is a company incorporated under the provisions of the Companies Act, 1956 in the year 1981. It is wholly owned by the Government of Tamil Nadu. It is a statutory body which under Section 17-C (1-B) of the Tamil Nadu Prohibition Act, 1937 has been given an exclusive monopoly not only to control and effect wholesale, but also retail sale of Indian Made Foreign Spirits (IMFS) in the entire state of Tamil Nadu. 13. Wholesale and retail business is being carried out by the petitioner since 2003, pursuant to Tamil Nadu Prohibition Amendment Ordinance 08.01.2003 issued under Article 213 of the Constitution of India, pursuant to which Section 17-C (1-A) was inserted in the Tamil Nadu Prohibition Act, 1937. 14. The petitioner has been vested with the special and exclusive privilege of effecting wholesale supply of Indian Made Foreign Spirits in the entire state of Tamil Nadu under Section 17-C(1-A)(a) of the Tamil Nadu Prohibition Act, 1937. 15. Excerpt from S.Jagannathan vs. The Managing Director in W.P. No. 27352 of 2021, vide order dated 31.01.2022, which sets out the history of prohibitive law in Tamil Nadu, is reproduced below to have a clear pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so given for toddy tapping as it was accepted then. 91. A reading of the pre-amble of the Tamil Nadu Prohibition Act, 1937 makes it clear that the Act is in consonance with the Directive Principle of State Policy under Article 47 of the Constitution of India which enjoins State to endeavour to take steps to bring about a prohibition of intoxicating drinks and drugs which are injurious to health. 92. In 1971-72, prohibition was briefly lifted for the 1st time. The sale of liquor and toddy through shops were thrown open to the public with the enactment of Tamil Nadu Prohibition (Suspension of Operation) Act, 1971. 93. The operation of the provisions of the Tamil Nadu Prohibition Act, 1937 was suspended with the enactment of Tamil Nadu Prohibition (Suspension of Operation) Act, 1971. The prohibition imposed was however short lived. 94. Within three years, the Tamil Nadu Prohibition Act, 1937 was revived with the enactment of Tamil Nadu Prohibition (Revival of Operation and Amendment) Act, 1974 with effect from 20.08.1974. 95. In 1976, prohibition was once again briefly introduced. In 1981, Prohibition was again lifted and thus the public was once again allowed to purchase li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992-93 stating only retail vendors will be eligible for Bar licences. 104. By G.O.Ms.No.99, Prohibition and Excise Department, dated 26th May, 1992, the Government of Tamil Nadu introduced the Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 for regulating the issue of licence and the privilege of retail vending of liquor in the Bar. The Rules came into force on 1st June, 1992. 105. Under rule 4(a) of the aforesaid Rules, a person holding a licence granted under Rules 13 of Retail Vending Rules, 1989 was allowed to file an application for grant of privilege and licence for retail vending of liquor in the Bar. These bars are different from the bars attached to the hotels to whom licences are issued under the provisions of the Tamil Nadu Liquor (License & Permit) Rules,1981. 106. In 1993, G.O.Ms.No.44, Prohibition and Excise Department, dated 03.03.1993 was issued. The then Government decided to dis-continue the grant/renewal of licences for bars attached to the Indian Made Liquor Retail Vending Shops under the Tamil Nadu Liquor (Retail Vending in Bar) Rules, 1992 with effect from the excise year commencing from the 1st June, 1993. 107. Thus, Tamil Nadu Liquor (Retail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the respondents TASMAC. 129. In 2003, when Respondents TASMAC thus took over the business of retail business in the sale of liquor in the State with the insertion of Section 17-C (1-B), TASMAC became State monopoly. The then existing Tamil Nadu Liquor (Retail Vending) Rules, 1989 and Tamil Nadu Liquor (Retail Vending in Bar) Rules, 2000, were repealed. 16. It was further observed in S. Jagannathan,supra, as follows:- 133. Sub Clause (1-A) and Section 17-C (1-B) of the Tamil Nadu Prohibition Act, 1937 which were inserted in the Act, merely allows TASMAC to do "wholesale" and "retail business", does not permit respondents TASMAC a right to confer privilege to a 3rd parties to render allied business of selling short eats and/ or support service to collect used bottle from premises used as a bar. If the Act does not permit a person to be in a state of intoxication in public place, TASMAC cannot be seen permitting consumption by consumers of liquor in pubic place. Even if bar is not a public place, person after consuming liquor in the so called bar will have to necessarily pass through pubic place to return home. Therefore, what TASMAC cannot do directly, it cannot do indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the buyers of liquor to consume the liquor/Alcohol purchased from the TASMAC Shops. 142. The purported exercise of auctioning rights under the impugned Tender Notifications as explained as having been issued under Rule 9A of the Tamil Nadu Liquor Retail Vending (In Shops and Bars), Rule 2003 cannot be countenanced under Rule 9A. 143. Rule 9A which was inserted to the Rules only in the year 2013 vide G.O.Ms.No.20, Home P & E dated 29.3.2013 reads as under: "Rule 9-A.Grant of Privilege to run the bar:The privilege of running bars may be granted to private parties by tender. The Board of the Corporation may decide the upset price and other terms and conditions of tender, from time to time, with the prior approval of the Commissioner of Probation and Excise. The Corporation, as agency shall collect the tender amount from the successful tenderers and remit the same to the Government on or before the 25th of the following month and the Corporation may retain 1% of the amount so collected as agency commission." 144. The respondents TASMAC has however continued to auction such right to sell short eats to private parties and to collect used bottles ostensibly in line with the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws:- "All the District Managers may be directed to call fresh tender during the month of September 2019 for granting permission to sell eatables and to collect empty bottles in the bars attached to the Retail Vending shops, as per below mentioned terms and conditions. a) The upset prices should be fixed at the rate of 1.80% of average monthly sales of last financial year (2018-19) for the bars attached to the concerned Retail Vending shops located in Corporation & Municipality areas. b) The upset prices should be fixed at the rate of 1.60% of average monthly sales of last financial year (2018-190 for the bars attached to the concerned Retail Vending shops located in Town Panchayat areas. c) The upset prices should be fixed at the rate of 1.40% of average monthly sales of last financial year (2018-190 for the bars attached to the concerned Retail Vending shops located in village Panchayat areas. d) In respect of The Nilgiris District, the upset prices should be fixed at the rate of 1.50% of average monthly sales of last financial year (2018-19) for the bars attached to the concerned Retail Vending shops located in Municipality areas, 1.25% of average monthly sales of last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail outlet. The upset price has varied from 1.4% to 1.80% of the average monthly sales of the previous Financial Year 2018-2019 from the retail vending shops of the petitioner allotted in the Corporation, Municipality or Panchayat areas. The successful bidder was required to pay 1% fee to the petitioner as agency commission and 99% to the Government. 22. Bar licenses are granted to licensees to sell eatables and for collection of empty bottles left by consumers. By the bar license, the bar licensees are entitled to monetise the left over bottles by consumers. Bar license is given as per Rule 9A of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. 23. The petitioner as an agency merely collects the tender amount from the successful tenderer and remits the same to the Government on or before 25th date of the following month while retaining 1% of the amount so collected as its agency commission. In this connection, relevant clauses of the terms and conditions of the licenses issued to the licensees are referred to the activities relating to collection of the empty bottles. They read as under:- "22.Whereas the license is granted only for the sale of eatables and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee retained is offered to income tax. Thus, there is clear split up of the license fee into 99% in favour of the Government and 1% in its favour as clarified by G.O.Ms.No.20 Home Prohibition and Excise (VI) department dated 29.03.2013. 26. It is submitted by the learned counsel for the petitioner that the Respondent's reasoning and conclusion in the impugned order that the empty bottles left over by the consumers in the bar clearly qualify as scrap arising from mechanical working of materials is incorrect and is as such erroneous. 27.It is submitted that the petitioner is not engaged in manufacture or generation of waste from mechanical working of materials from which scrap has arisen. It is submitted that the petitioner is merely selling liquor in its retail shops. The empty liquor bottles left by the consumers are in the bar and not the property of the petitioner and in any event not sold by it. It is further submitted that it would not come under the purview of the definition of "scrap" in Explanation to Section 206C of the Income Tax Act, 1961. 28. It is submitted that after effecting sales, the Petitioner has no right over the liquor bottles. The Petitioner has merely given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er TASMAC has satisfied the conditions of a "seller" of scrap to the winning bidders through the process of tendering is erroneous. 35. It is submitted that the Petitioner only sells bottled liquor procured from distilleries and breweries to ultimate customers through its retail shops and that there is no sale of empty bottles by the petitioner to the licensed bar owners. It is further submitted that the price of bottles is included in the sale price of the liquor and on the total price of bottled liquor. VAT (Value Added Tax) is paid and therefore, there is no question of separate sale of empty bottles by the Petitioner to the licensed bar owners. 36. It is further submitted that it is very clear that empty bottles are collected by the Bar contractors and sold by them in their own right and name and the sale consideration is retained by them as they are sellers. It is submitted that the Corporation at no point of time sells the empty bottles or realizes any revenue from sale of such empty bottles. 37. It is submitted by the learned counsel for the petitioner that the Respondent's reasoning and conclusion in the impugned order that successful bidders qualify as "buyers" of scrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense by granting them permission to run the bars and passing it on to State Government of Tamil Nadu and that the amounts collected were not liable to service tax as it was only a devolution of the sovereign rights vested in it by the State. 43. It is further submitted that once the petitioner has paid Service Tax on the 1% of the Agency Commission, the same can be in no stretch of imagination or logic treated as sale consideration for empty bottles. 44. It is submitted by the respondent that TASMAC calls for tenders to operate bars adjoining the TASMAC retail outlets. It is further submitted that as per the tender documents and the conditions stipulated therein, the benefits assigned to the winning bidders are only for the sale of eatables and the collection of empty bottles. It is further submitted by the learned counsel for the respondent that the base price fixed by TASMAC for the tenders is on the basis of liquor sales made in each of such outlets. 45. It is submitted that TASMAC is having control/ rights over the empty bottles which get confirmed by the fact that it alone has the right to award tenders and earn revenues through the sale of such empty bottles as is the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case under discussion since the scraps in question were usable items and thus do not fall within the purview of Section 206C. 54. It is submitted by the learned counsel for the respondent that there is no condition stipulated in the G.O. dated 29.03.2013 directing TASMAC to collect 99% of license fee favouring the State Government separately and, therefore, it is the responsibility of TASMAC only to collect the entire tender amount and remit the same to the government. It is further submitted that the liability to collect TCS on the entire license rests on TASMAC. 55. It is submitted by the respondent that it is well settled that in cases involving fiscal nature, availing of statutory appellate remedy has to be first exhausted and the party cannot come directly to the Hon'ble High Court and file a petition under Article 226 of the Constitution of India. 56. In connection to this, the learned counsel for the respondent placed reliance on Assistant Collector of Central Excise Chandan Nagar, West Bengal v. Dunlop India Ltd. and Ors., [1985] 1 SCC 260 wherein the following was held: "Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (4) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. (5) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3). (6) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or even after collecting the tax fails to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. It reads as under:- 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 incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact that the persons in whose names contracts were taken are men of no means. With a view to combating large scale tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r collecting tax in accordance with the provisions of this section, fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee but is not deemed to be an assessee in default under the first proviso of sub-section (6A), the interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee: 62. The expression 'Scrap' for the purpose of Sl.No.6 to table to Sub Section (1) has been defined in Explanation clause (b). Explanation (b) to Section 206C of the Income Tax Act, 1961 reads as under:- "Section 206C:Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc. Explanation - for the purposes of this Section - (a) ..... (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;" 63. Section 206C of the Income Tax Act, 1961 has to be read along with Rule 37CA of the Income Tax Rules, 1962. Rule 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Section shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs. Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. 69. As per Sub Section (7) to Section 206C of the Income Tax Act, 1961, a person responsible for collecting tax failing to pay tax to the credit of the Central Government on or before the date specified, either after collecting the tax or fails to collect tax, shall be liable to pay simple interest at the rate of 1% 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 or payable and such interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section and in section 206CC. (3) For the purposes of this section "specified person" means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be collected, for which the time limit for furnishing the return of income under sub-section (1) of section 139 has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year... Thus, for Assessment Years 2022-23 and 2023-24, tax has been assessed under Section 206CCA of the Income Tax Act, 1961. 73. As per sub-clause (1) of Section 206C of the Income Tax Act, 1961, every seller shall collect from the buyer of any goods specified in Col.2 to the table above, a sum equal to the amounts specified in Col.3 of the said table. In this case, the petitioner has awarded contracts to various bar owners to run the bar adjacent to the retail shows run by the petitioner. 74. As mentioned elsewhere above, the licensees who have been issued licenses to run the bar adjacent to the retail outlets/shops of the petitioner were required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been defined separately. 80. The Hon'ble Supreme Court had an occasion to deal with a similar occasion in the context of Central Excise Act, 1944 in Commissioner of Central Excise, Cochin Vs. Appollo Tyres, [2005] (184) ELT 115 (SC). There, Chapter Note 6 to Section XV of Central Excise Tariff Act, 1985 was referred to. It reads as follows:- "8.The respondents went in appeal to CEGAT. CEGAT has by the impugned judgment held that these products were to be classifiable under Tariff Item 4004. CEGAT has so held without at all considering the composition of the products. CEGAT has so held only on the basis of Chapter Note 6 to Chapter 40 which reads as follows: "6. For the purposes of Heading 40.04, the expression 'waste, parings and scrap' means rubber waste, parings and scrap from the manufacture or working of rubber and rubber goods definitely not usable as such because of cutting-up, wear or other reasons." (emphasis supplied) CEGAT has also relied upon Note 8 to Section XV which reads as follows: "8. In this section, the following expressions have the meanings hereby assigned to them: (a) Waste and scrap.-Metal waste and scrap from the manufacture or mechanical wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 985 has a very limited purpose of extending coverage to the particular items of the relevant tariff entry in the Schedule for determining the applicable rate of duty and it cannot be readily construed to have any deeming effect in relation to the process of manufacture as is contemplated by Section 2(f) of the Central Exercise Act, 1944 unless expressly mentioned in the said Section Note. 82. Both manufacture and "mechanical working of material" can generate "scrap". Although, an activity may not amount to "manufacture" yet waste and scrap can be generated from "mechanical working of material". 83. The definition of "manufacture" in Section 2(f) of the Central Excise Act,1944 was expanded in 2003 with effect from 01.03.2003 vide Section 135 of the Finance Act, 2003(32 of 2003), read with clause 127 of the Finance Bill, 2003 (8 of 2003). We are not concerned with it in these writ petitions. 84. The expression "mechanical working" is not new to taxing enactments. It has been used in the Central Excise Tariff Act, 1985 and under the Customs Tariff Act, 1975. Section Note 8(a) to Section XV of the Central Excise Tariff Act, 1985 uses the expression 'waste generated during mechan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 206C of the Income Tax Act, 1961 can therefore to be gathered by applying the doctrine of noscitur a sociis from the meaning of the expression "manufacture" in Section 2(29BA) of the Income Tax Act, 1961. 94. The definition of the expression "manufacture" in Section 2(29BA) of the Income Tax Act, 1961 is similar to the definition of "manufacture" in Section 2(f) of the Central Excise Act, 1944. Therefore, for a "waste" or a "scrap" to be liable to excise duty under Section 3 of the Central Excise Act, 1944, such "waste" or "scrap" was also to be specified in the 1st Schedule to Central Excise Tariff Act, 1985. 95. Certain activity may amount to "manufacture" yet not liable to Central Exercise Duty. An activity may resemble to a "manufacturing activity", yet may not amount to "manufacture". Only those activity can came within the purview of the expression of "mechanical working of material". 96. In other words, only those activity which resemble "manufacturing activity", but are not a "manufacturing activity" can come within the purview of the expression of "mechanical working of material". Only such "scrap" arising of such "mechanical working of material"are in contempl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all, the ownership over the bottles at best would stand vested with the respective bar owners / licensees who have been licensed. Sale of left over bottles are merely regulated. Mere regulation of such sale would not render the petitioner sale of bottles A mere privilege is conferred on the respective bar owners / licensees to collect the left over bottles and sell them to the breweries and distilleries. There is no scope to conclude sale bottles by the petitioners to the respective bar owners / licensees. 105. To be a "seller" of used bottle, the petitioner should be the owner of the bottle. Neither the petitioner nor the Bar owners / licensees are the owners of the bottles left behind in the licensed premises (Bar). 106. The petitioner merely decides the upset price and other terms and conditions in the tender process with the approval of the Commissioner of Prohibition and Excise. Merely because used bottles are to be cleared which implies sale by them would not render the petitioner "seller" for the purpose of Section 206C of the Act. 107. There is neither a "manufacture" nor a generation of "scrap" from "mechanical working of materials", the liability under Section 206C o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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