The Controversy settled: Applicability of TDS on Purchase of Coal or Scrap after declaration in Form No. 27C

The Controversy settled: Applicability of TDS on Purchase of Coal or Scrap after declaration in Form No. 27C

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The Controversy settled: Applicability of TDS on Purchase of Coal or Scrap after declaration in Form No. 27C

Scope of TDS compliance has been widened with effect from 1st July 2021 as “Purchase of Goods” will also be subject to TDS. Every buyer whose total sales, gross receipts or turnover from the business in the preceding financial year exceeds Rs. 10 Cr would be required to do TDS if the amount of purchase from any person exceeds Rs. 50 Lakh. There are lots of issues and concerns as far as this new provision is concerned. Let us have one such issue in this article.
Section 194Q is not applicable if the TDS/TCS is done under any other section of the Income Tax Act.
At present. Coal, Timber, Scarp etc are already subject to TCS provision u/s 206C(1). It means that if TCS is done by the seller on sale of Coal, Timber, Scarp etc then no TDS U/s 194Q would be required.
It may be noted that if the buyer purchases all these items in the process of manufacturing and furnishes the declaration in Form No. 27C to the same effect to the seller, then no TCS liability would arise in the hands of the seller. For this, a declaration in Form No. 27C is required as per Rule 37C of the Income Tax Rules & it has to be furnished to the seller by the buyer.
Rule 37C dealing with declaration by the buyer for purchase without TCS reads as under:
37C. (1) A declaration under sub-section (1A) of section 206C to the effect that any of the goods referred to in the Table in sub-section (1) of that section are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes shall be in Form No. 27C and shall be verified in the manner indicated therein.
(2) The declaration referred to in sub-rule (1) shall be furnished in duplicate to the person responsible for collecting tax.
(3) The person referred to in sub-rule (2) shall deliver or cause to be delivered to the Chief Commissioner or Commissioner, one copy of the declaration referred to in sub-rule (1) on or before the seventh day of the month next following the month in which the declaration is furnished to him.
Explanation: For the purposes of
Scope of TDS compliance has been widened with effect from 1st July 2021 as “Purchase of Goods” will also be subject to TDS.
the Chief Commissioner or Commissioner means the Chief Commissioner or Commissioner to whom the Assessing Officer, having jurisdiction to assess the person referred to in sub-rule (2), is subordinate.
The question now emerges, whether deduction / Collection under section 194Q would be required if the TCS is not done by the seller on the basis of declaration furnished by the buyer in Form NO. 27C. In short, if the buyer furnishes the declaration to the seller and so the seller doesn’t do TCS in such a case, whether the buyer would be required to do the TDS U/s 194Q in such cases?
One need to revisit Section 194Q which reads as under:
Deduction of tax at source on payment of certain sum for purchase of goods.
194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
Explanation.—For the purposes of this sub-section, “buyer” 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 purchase 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.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.
(5) The provisions of this section shall not apply to a transaction on which—
(a)  tax is deductible under any of the provisions of this Act; and
(b)  tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies
The most important and relevant part is sub section 5 which provides that the provisions of section 194Q shall not be applicable in respect of the transaction of purchase if
(a)  tax is deductible under any of the provisions of this Act; and
(b)  tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies
The question was arising whether TDS u/s 194Q would be applicable if the TCS is not done by the seller on coal or scrap sale for the reason that the buyer has furnished the declaration in Form No. 270C that the goods will be used in the manufacturing process and thereby TCS immunity is availed by the buyer.
Arguments in favour of non-deduction u/s 194Q:
The word is “tax is collectible” which will also include the tax is not collected by virtue of exception or immunity provided therein. If the intention of the legislature would have been to give immunity to only such transactions on which TCS is done u/s 206C(1), then the word that would have been used should have been “tax is collected”. Here, the use of the word “Tax is Collectible” can be said to have been used so as to denote the goods which are covered by section 206C(1). By using the word “Tax is collectible”, an immunity is given for all items which are covered in section 206C(1) which includes coal, scrap, timber, etc.
Arguments in favor of deduction u/s 194Q:
The other view could be that, if no TCS is done by virtue of declaration furnished in form No. 27C then “no TCS is collectible” and so there is an applicability of TDS U/s 194Q.
Given the purpose & intention of the legislature behind incorporating section 194Q, there may be the necessity of having TDS U/s 194Q in such cases.
Both the arguments are justifiable and arguable. It was a matter of litigation, contradictory opinions and disputes as well.
Finally, CBDT has clarified the issue vide F.No. 3701422/56/2021-TPL Dated 25/11/2021. The relevant part (Para 5.3) of the said circular is produced as under:
5.3 Applicability of section 194Q of the Act in cases where exemption has been provided under section 206C (1A) of the Act
5.3.1 Sub-section (1A) of section 206C of the Act provides that notwithstanding anything contained in sub-section (1) of the said section, no tax is to be collected in case of a buyer, who is a resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration to the effect that the goods (as referred to in sub-section (1)) are to be utilized for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.
5.3.2 As per the provisions of sub-section (IH) of section 206C of the Act, tax is to be collected in respect of sale of goods other than the goods which have not been covered under sub-section (1) or sub­section (1F) or sub-section (1 G). It has been represented that in case of goods which are covered under the provisions of sub-section (1) of the said section but exempted under sub-section (1A), tax will not be collectible under either sub-section (I) or sub-section (1H) of section 206C as the provisions of sub­section (1H) categorically exclude the goods which are covered under sub-section ( I) of section 206C. It has been requested to clarify if the provisions of section 194Q of the Act will be applicable in such cases.
5.3.3 The issue has been examined. It is seen that the provisions of section 194Q of the Act does not apply in respect to those transactions where tax is collectible under section 206C [except sub-section (IH) thereof] of the Act. Since by virtue of sub-section (IA) of section 206C of the Act, the tax is not required to be collected for goods covered under sub-section (I) of the said section, it is hereby clarified that in such cases, the provisions of section 194Q of the Act will apply and the buyer shall be liable to deduct tax under the said section if the conditions specified therein are Fulfilled.
In short, as expected, CBDT has clarified that the TDS U/s 194Q would be applicable if no TCS is done as a result of declaration furnished by the buyer that the goods will be used in the process of manufacturing.
Whether right or wrong, the good part is that the controversy has been settled by the CBDT. Now, TDS U/s 194Q will be required in all such cases.

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