TCS on Scrap
Total Replies. 21
by K.SANKARAKRISHNAN on 05 February 2010
One of my client is a trader in Scrap. When he sells his scrap to other scrap traders, whether my client has to collect TCS from that buyer trader?
by Vineet on 08 February 2010
Yes TCS is applicable in the case of traders only. Please refer to section 206C(1A) of the Act.
by Imran Desai on 12 March 2010
‘Scrap’ has been defined as 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.
It would include only such waste or scrap which arises from manufacture or mechanical working of materials. Further, such waste should not be usable as such. Accordingly, it would not include any waste or scrap—
a. which does not arise from manufacture or mechanical working of materials; or
b. which is usable as such.
Thus, the following are not covered—
a. waste or scrap arising from packing materials, newspapers, old machinery scrapped, etc. which cannot be said to arise from manufacture; or
b. by-products generated from the manufacturing process as the same could be used as such.
It can be inferred that, in case of sale of scrap, the provision would apply to only those sellers who are engaged in the business of manufacturing or mechanical working of materials.
In your case the assessee in reseller and not manufacturer and hence the provision will not apply.
Dear Mr Imran, the TCS provision is applicable in the case of SELLER of Scrap irrespective of the fact whether the seller itself generates the scrap or resell it. The only exemption in this matter is sale to ultimate user who utilises the scrap for manufacturing or processing. In the case of sale to traders (resellers) the TCS provisions are very much applicable at every instance of sale. Hence in this case TCS provisions are applibale as the buyers are traders in scrap.
by Imran Desai on 18 March 2010
Mr. Vineet, I have some questions for you.
Now as per above communication T.C.S is applicable on 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. So it is clear that T.C.S is applicable in first source (Manufacture). now please give an opinion whether Alnang is liable to deduct T.C.S as there in no manufacturing process and futher salesT.C.S has to deducted? and whether goods purchased from impoter were the source is not known, when sold T.C.S has to be deducted. If not how the assesee will maintain his books of account.
Dear Mr imran
First thing first, TCS is Tax Collected at Source and not deduction.
It is liability casted on certain Persons, who collect or receive money in certain transaction to recover tax at specfied rate in addition to sales consideration from the buyer.
The point of first sale concept which was applicable for the purposes of deemed profit u/s 44AC and 206C as applicable wef 1-6-1988 has been done away with amendment wef 1-4-1992. The section 44AC stands deleted from that date and section 206C reads as follows:
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 corresponding entry in column (3) of the said Table, of such amount as income-tax:
Now I hope it is pretty clear that the liability to collect TCS has been casted upon every seller irrespective of the source from where he procures the scrap or he himself is the manufacturer of such scrap. That answers your questions. In this case Alangh scrap seller will collect TCS from your reseller and your reseller will collect TCS on subsequent sale. In the case of import of scrap, as the foreign party is not bound by Indian Laws, they will not collect any TCS and therefore your reseller will not avail any tax credit for the same.
The only exemption from TCS is provided in cases where scrap is sold to a buyer who is end user of such scrap for any manufacturing process and for such exemption the buyer has to provide a declaration in prescribed format as per sub-section (1A) of section 206C.
In the case of TCS, the seller merely acts as a collector of tax and deposit the same to treasury, he is not supposed to maintain any specific accounts. The buyer can avail credit for the TCS in his return of income as and when the income accrues to him on such purchased goods.
by Imran Desai on 20 March 2010
You are advised to refer defination of scrap and among the items priscrbed in the act for the prvison of T.C.S only scrap has been define seprately. An clear interpretation is given in direct taxes law & practice by Taxxman I am enclosing a copy for your reference.
It would include only such waste or scrap which arises from manufacture or mechanical working of materials.
The defenation of Buyer & seller will apply to only those seller who are covered under the defination of scrap and not all.