TMI Blog2024 (4) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... ors to purchase from its associate to complete the manufacturing. As per the information available on record the assessee has given purchase order with the specification of the finished product with a condition that the finished goods should match the specifications and in case it does not match the goods will be returned back to the vendors. This is a standard purchase order given to the vendors to supply the goods as per the specification, without specifications the purchase order is not complete. Here, the payments made by the assessee is towards the contract of purchase or contracts of works is an issue under consideration, as held in the case of CIT v. Glenmark Pharmaceuticals Ltd. [ 2010 (3) TMI 289 - BOMBAY HIGH COURT] , thus the transactions carried on by the assessee is clearly falls within the ambit of contract of purchase. Thus not to disturb the findings of the Ld. CIT(A) to treat the transactions as contract of purchase and not of works contracts. Accordingly, we direct the AO to delete the additions proposed u/s 201(1)/201(1A) - Grounds raised by the revenue are dismissed. - Shri Aby T Varkey, Hon'ble Judicial Member And Shri S. Rifaur Rahman, Hon'ble Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be taxable under the 194C of the IT Act. III. I have gone through the submission made by the assessee company and came to conclusion that the company has not purchased any product directly from the open market. In the books of accounts of the company it is shown as purchase, however, it is clear contract since, after issuing PO order as per specification given by the company, the vendor company has start to produce the product as required and as asked by the assessee company with quantity as required. Vendor company at their own do not manufacture their product for sale in open market, as and when any order received from the assessee company then only they manufacture the product. The assessee company has not only ask for specify size only but whatever raw material to be used for the product with their logo to final product with the assessee companies brand name. Hence it is clear that this is not a contract for of sale but the work contract given by the assessee company, The vendor company do not have any power to sale any product under logo Bombay Dyeing in open market or any other parties. The assessee does not supervise but inspected the goods whether it is manufactured a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 07.02.2019 filed in response to query raised in statement on oath during the spot verification regarding logo of Bombay dyeing and the relevant portion is reproduced below Procedure for use of logo In order to fulfil the sale order company approach to the designated vendors for manufacturing of product as per the desired specification. Company also supplies the packing material with logo of The Bombay Dyeing Mfg. Co Ltd to the vendor.' As the assessee is supplying the packing material with logo to the vendors makes it clear that this is a work contract and hence it should be considered under the purview of the section u/ s 194C and TDS should be deducted as per provisions of IT Act. 3. Accordingly, Assessing Officer observed that various payments of purchase to various vendors of Ready Finished Goods which is nothing but the work contract done from the various vendors which comes under the purview of section 194C and TDS should have been deducted while making payments to the above vendors. Accordingly, he invoked provisions of section 201(1) and 201(1A) to make the addition under section 201(1) of the Act at ₹.2,37,17,965/- and interest under section 201(1A) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or delivered to the appellant, the manufacturer was forbidden for affixing the appellant's trade mark on the goods supplied to the outsider, and the supplier was also liable to pay sales tax and other taxes on the goods supplied by it to the appellant purchaser. The combined effect of these conditions would go to show that it is a case of simple purchase of goods and not a contract for works. 17. Respectfully following the aforesaid judgments and after carefully perusing the judgments relied upon by the appellant where the issue has been directly considered and decided, I hold that the DCIT (TDS)2(3), Mumbai being the assessing officer in this case, has committed an error in holding that the assessee was liable to deduct tax under section 194C from the payments of Rs. 118,58,98,272/- made to the manufacturers/ suppliers/ vendors who supplied the finished products to the appellant and I also hold that the appellant is not an assessee in default for the purpose of section 201(1). I direct the AO to vacate the demand of Rs. 2,37,17,965/- and interest demand of Rs. 2,25,32,067/- raised u/s 201(1) and u/s 201(1A) respectively. 7. Aggrieved with the above order, revenue is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied by the Reebok India Company whereas in the present case logo was not supplied. 10. Further, he brought to our notice treatment of rejected goods which did not meet the specifications. In the case of the assessee, the rejected goods which did not meet the quality specification are rejected/discarded and returned to the vendor. Whereas in the case of Reebok India Company (supra) such goods are not allowed to be used by the supplier and is destroyed under the supervision of the Reebok India Company. He said that this clearly shows that the assessee is in control of the manufacturing process and he submitted that as was the facts brought on record by the Assessing Officer the payments made by the assessee falls within the ambit of provisions of section 194C of the Act because the assessee is having the full control of the productions and specifications of the goods supplied by such vendors. 11. On the other hand, Ld. AR brought to our notice CBDT Circular dated 13/2006 dated 13.12.2006 and Circular No. 681 dated 08.03.1994. Further, he brought to our notice definition of works given under section 194C Explanation (iv)(e) of the Act relating to manufacturing activities. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the raw material from the market only upon receipt of purchase order from the assessee, he distinguished the case law and the CBDT circulars brought on record by the assessee by observing that the assessee purchased goods from vendor from time to time which is a regular activities of work contract and regular payments are done between assessee and vendor company. The assessee does not supervise but inspect the goods whether it is manufactured as per the specifications given in the purchase order and finally he observed that the assessee is supplying the packing material with logo to the vendors makes it clear that it is work contract. 14. The Ld. CIT(A) considering the observations of the Assessing Officer and the detailed submissions of the assessee which Ld. CIT(A) has brought on record and observed that the assessee has actually entered contract of purchase and not contract of manufacture or work contract. He observed that the manufacturers purchase raw materials on their own and produces the goods as per specifications supplied by the assessee and the ownership of the goods passes from the manufacturer to the assessee when the goods were supplied and delivered to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn markets the product. The present case relates to the third category where admittedly, the entire process of manufacturing is carried out by a third party with whom the assessee has a contract. The work of manufacture is carried out at the establishment of the third party manufacturer. The raw materials are purchased by the third party manufacturer. The contract envisages that the trademark of the assessee is to be affixed to the goods manufactured by the third party. The contract in issue in the appeal 22. The salient aspects of the contracts that form the subject-matter of the present appeal have to be considered. The attention of the Court is drawn to an agreement dt. 18th May, 2005 entered into between the assessee, Glenmark Pharmaceuticals and Maxim Pharmaceuticals (P) Ltd. The agreement envisages that the assessee has developed certain pharmaceutical formulations which it intends to market under specified brand names. The assessee agreed to disclose to the manufacturer technical information and data relating to the manufacture of the products in accordance with the specifications and standards laid down by the assessee. The process of manufacturing is to be carried out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. These according to counsel must result in an inference that the contract is not a contract of sale. 24. The submission that the contract is not a contract of sale because specifications are provided to the manufacturer by the purchaser cannot be accepted. That has not been the understanding of the law at any point of time. The fact that the purchaser provides specifications to the manufacturer has never been construed even by the Revenue to be a circumstance which should lead to the inference that the contract is not a contract of sale. Firstly, the circulars issued by the CBDT right since 29th May, 1972 consistently took the position that furnishing of specifications to the manufacturer of goods by the purchaser would not detract from a contract being regarded as a contract for sale so long as the property in the goods passes upon delivery. The consideration which was regarded by the Revenue as having relevance was whether the material was supplied to the contractor by the Government, or, as the case may be, by a specified person. Where the material is provided by the purchaser and the work of fabrication or manufacture is carried out by the contractor, the agreement woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dabur India Ltd. (2005) 198 CTR (Del) 375 : (2006) 283 ITR 197 (Del) and CIT vs. Seagram Manufacturing (P) Ltd. (2009) 221 CTR (Del) 509 : (2009) 17 DTR (Del) 276. Another decision of the Delhi High Court in CIT vs. Reebok India Co. (2009) 221 CTR (Del) 508 : (2009) 17 DTR (Del) 274 : (2008) 306 ITR 124 (Del) involved a case where the assessee had entered into an agreement with a manufacturer who manufactured footwear, apparel accessories and sports goods for the assessee. The Delhi High Court affirmed the judgment of the Tribunal that the provisions of s. 194C were not attracted. The Gujarat High Court had occasion to deal with a contract relating to supply of printing and packing materials in its decision in CIT vs. Girnar Food Beverage (P) Ltd. (2008) 306 ITR 23 (Guj). The Punjab Haryana High Court dealt with a contract for the supply of packing material in its decision in CIT vs. Dy. Chief Accounts Officer, Markfed (2008) 217 CTR (P H) 555 : (2008) 5 DTR (P H) 326 : (2008) 304 ITR 17 (P H). Sec. 194C was held not to be attracted. Speaking for a Division Bench of this Court, one of us (Shri Justice J.P. Devadhar) held in The East India Hotels Ltd. vs. CBDT (2009) 223 CTR (Bom) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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