As per Section 206C of Income Tax Act, 1961 (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:
TABLE
The Word SCRAP is defined as : 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
The following words of definition are essential to interpret
| Words | Meaning |
| means | exhaustive definition |
| waste and scrap | Waste and Scrap is singular , as word “which is” used in definition later |
| from manufacture | this waste and Scrap must be generated from Manufacturing activities |
| or mechanical working | Or this waste and Scrap must be generated from Mechanical working of Material |
The definition contains:-
Scrap from Manufacturing of Material: – The word manufacture is defined in section 2(29BA) of Income Tax Act, 1961 as “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,—
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure
i) Factory :-In factory raw material is used as input to manufacture final output. Therefore anything rest after raw material processing, which may not be used in same form, may be treated as Scrap.
ii) Administrative Offices : An Administrative office is place where official works which are mostly relates to paper work, coordination work, meeting and liaisoning are carried out. There is no manufacturing activity.
iii) Storage Location/Warehouse: Here no manufacturing of material is carried out. As only goods are stored and dispatched.
2) Scrap from Mechanical working of Material:- The word Mechanical working is nowhere defined in IT Act. As per law dictionary Mechanical working means Physical operations on a material that deform it into a desired shape, such as bending, cutting, drawing, grinding, hammering, rolling, shaving, and twisting. Here Scrap from Mechanical working of Material <(like sugar cane (input) is crushed in machine(mechanical working), juice come out (output) and squeezed sugar cane leftover) here we are talking about scrap from, Mechanical working of material like in above example crushing of sugar cane in machine is mechanical working>. Or it may be said that when we cut pipes or twist iron etc as desired then anything leftover from this material is scrap.
i) Factory : in Factory large numbers of machines are used for mechanical working of raw material/Semi Finished Product etc. Therefore selling of such machines/part thereof (which may not used as same form) may be treated as Scrap.
ii) Administrative Offices The selling of machine/part thereof like Furniture, Iron ferrous or non-ferrous scrap, dismantled electronic items etc, which don’t involve in mechanical working of material. Therefore these may not be termed as scarp for applicability of section 206C.
iii) Storage Location/Warehouse: Here neither any material is manufactured nor any mechanical working of material is carried out. Therefore selling of scrap items from these location may not be termed as scrap for the purpose of section 206C
Therefore responsibility to collect TCS comes when Scrap is sold and such Scrap must be come out from manufacture or mechanical work of material.
A scrap may be generated from following location of company
| Location | Status |
| Administrative Office | No Manufacturing or Mechanical working of Material is carried out |
| Guest House | No Manufacturing or Mechanical working of Material is carried out |
| Training Centre | No Manufacturing or Mechanical working of Material is carried out |
| Storage Location | No Manufacturing or Mechanical working of Material is carried out |
| Factory | Manufacturing or Mechanical working of material is carried out |
Following type of waste are dealt by us
| Type of Waste | Applicability of TCS |
| Office Items (computer/printer/stationery/Furniture etc) | it is not a scrap for applicability of TCS |
| Sale of machinery/part thereof | it is not a scrap for applicability of TCS except sold by Factory. Selling of electronic items like TV/Penal/AC etc from Factory will also not attract TCS. |
| Sale of broken pipe/iron items | it is not a scrap for applicability of TCS except sold by Factory. |
| Residual item out of manufacturing of Material | TCS is collectable |
| Chemicals | it is not a scrap for applicability of TCS |
| others | it is not a scrap for applicability of TCS |
1) As per sub-section (1A) of section 206C, 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 (Form-27C) 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
2) (1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him
Note : any type of packing material/ storage material/containers/tanker/Barrel may not be classified as scrap under this section.
Republished with Amendments