Sale of Coal, Scrap, Timber etc: If TCS is not done on the basis of declaration of the buyer of use in the manufacturing process, whether TCS will be required under new section 206C(1H)?

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Sale of Coal, Scrap, Timber etc: If TCS is not done on the basis of declaration of the buyer of use in the manufacturing process, whether TCS will be required under new section 206C(1H)?

 

Every New provision comes with a new set of interesting issues & few controversies. This is equally true with the new provision which provides for TCS on sale of all the goods under sub-section (1H) in section 206C in the Income Tax Act.

A short Overview of the Relevant Part:

Section 206C (1H) provides as under:

  1. Every seller having turnover exceeding Rs. 10 Crore in the preceding financial year to collect Tax at Source @ 0.10% if the value or aggregate value of sale to any buyer during the year exceeds Rs. 50 Lakh. The TCS rate will be 1% if there is no PAN/Adhar of the buyer is available with the seller.
  2. TCS liability is proposed at the time of receipt of money from the buyers at (and not necessarily at the time of billing). It will increase the burden for the businessmen as they would be required to ensure TCS not at billing but on receipt of money from the buyer. In short, every receipt of money would be required to be backed by TCS.
  3. Of-course, TCS provision in such case would be applicable on sale effected after introduction of 206C(1H) only. Resultantly, taxpayer would be required to divide the receipt of money from its debtors as pertaining to period (a) prior to introduction of section 206C(1H) & (b) after introduction of section 206C(1H).
  4. Sale up to Rs. 50 Lakh is not liable for TCS & will be applicable only on amount exceeding Rs. 50 Lakh.  In short, every seller would be required to keep a watch on the threshold limit of Rs. 50 Lakh for every buyer.
  5. The new section 206C(1H) was originally proposed from 1st April 2020. But due to pandemics corona – 2020, its implementation has been deferred till 1st October 2020. It is now applicable from 1st October 2020.

It may be noted that TCS is already applicable on sale of Liquor, Timber wood, Tendu Leaves, Scrap, Minerals, Motor Vehicle exceeding Rs. 10 Lakh, Parking lot, Toll Plaza and Mining and Quarrying.

Old provisions of section 206C (1) provides for TCS on Coal, Scrap, Timber,  Tendu leaves, etc. Under the old provisions there is an option whereby buyers can get the material without TCS if they furnishes the declaration in prescribed Form No. 27C (Rule 37C) that the material will be used in the manufacturing process. If such declaration is furnished then the Seller can sale the goods without TCS.

The following question now emerges:

  1. Whether declaration in Form No. 27C can be made for purchase of goods u/s 206C(1H)?
  2. Whether goods covered earlier by section 206C(1) will also be covered by section 206C(1H) and so would required double collection?
  3. Whether if the buyer has furnished declaration in Form No. 27C & so no TCS is done then whether TCS will still be applicable u/s 206C(1H)?

Before covering the issue, first let us revisit section 206C (1H) which reads as under: 

206C(1H)

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation.—For the purposes of this sub-section,—

(a)  “buyer” means a person who purchases any goods, but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

With this background, let us cover the three issues raised above:

  1. Whether declaration in Form No. 27C can be made for purchase of goods u/s 206C(1H)?

    It may be noted that there is no immunity from the TCS provision U/S 206C (1H) even if the goods is purchased for use in the manufacturing process. In short, TCS u/s 206C (1H) is applicable even if it is proposed to be used in manufacturing process.
  1. Whether goods covered earlier by section 206C(1) will also be covered by section 206C(1H) and so would required double collection?


It may be noted that the TCS provisions u/s 206C (1H) is not applicable in respect of goods which are otherwise covered by section 206C (1).

In short, once goods are covered by section 206C (1), Section 206C(1H) becomes inoperative. The seller don’t have a choice of choosing section 206C (1H) over section 206C(1).

Whatever is covered by section 206C(1) will not be the part of section 206(1H).

  1. Whether if the buyer has furnished declaration in Form No. 27C & so no TCS is done then whether TCS will still be applicable u/s 206C(1H)?

    Section 206C (1H) clearly excludes the category of goods otherwise covered by section 206C (1). Section 206C (1H) is applicable on all goods “other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G)..”

In short, whether TCS is done or not done u/s 206C (1) by any reason whatsoever, if goods are covered by section 206C (1) then section 206C (1H) will not be applicable on such goods.

In short, even if the declaration is furnished by the buyer in Form No. 27C and so no TCS is done u/s 206C(1) then also the TCS will not be applicable u/s 206C(1H).

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