The Madras High Court in the case M/s. Tamil Nadu State Marketing Corporation Ltd. Versus DCIT observed and has held that empty liquor bottles cannot be included in scrap, and the TCS is not applicable in the matter.
The bench headed by Justice C. Saravanan in the case observed that the petitioner is neither being the owner of the bottle nor generates scrap as it is contemplated under the Income Tax Act, 1961. Thus, the activity of opening and uncorking is not a ‘mechanical working of material.’
The court stated that the invocation of section 206C, section 206CC, and section 206CCA of the Income Tax Act, 1961, was wholly misplaced and unwarranted under the circumstances against the petitioner for the alleged failure to collect tax at 1% on 99% of the license fee which is being payable to the government and 1% retained as agency commission.
In the present case, the petitioner or assessee sells the liquor in its retail shops as per the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003.
The assessee challenged the order wherein it was held that the assessee ought to have collected Tax Collected at Source, TCS on the amounts tendered by the successful bar licensee towards tax from the sale of empty bottles by treating the sale of bottles as scrap.
Therefore, the issue raised before the court was weather the petitioner was required to collect TCS from the bar licensees, who have been licensed to run bars under the license which is issued to them under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 as stated under Section 206C of the Income Tax Act, 1961.
It has also been contended before the court by the assessee that it is not engaged in the manufacture or generation of waste from the mechanical working of materials from which scrap has arisen. The petitioner merely being the selling liquor in its retail shops and the empty liquors bottles left by the consumers are in the bar and not the property of the petitioner, and in any event, they were not sold by it. Thus, it would not come under the purview of the definition of “scrap” in Explanation to Section 206C of the Income Tax Act, 1961.
It has also been urged by the assessee before the court that after effecting sales, the petitioner has no right over the liquor bottles and the petitioner has merely given the license to the independent bar contractors through a tender to collect the empty bottles left by consumers in the bars, which are actually sold by them on their own rights and not on behalf of the petitioner.
On the other hand, it has been contended by the department that there is no such condition which is stipulated in the G.O. dated March 29, 2013, directing TASMAC to collect 99% of the license fee, favouring the state government separately.
The court observed that it being the responsibility of TASMAC only to collect the entire tender amount and remit it to the government and the liability to collect TCS on the entire license rests on TASMAC.
The court while considering the facts and circumstances of the case observed and has held that there is neither a ‘manufacture’ nor a generation of ‘scrap’ from ‘mechanical working of materials,’ and the liability under Section 206C of the Income Tax Act, 1961, is not attracted.
The counsel, Advocate R. Vijayaraghavan appeared for the Petitioner.
The counsel, Advocate Dr. B. Ramaswamy represented the respondent.