Whether TCS applicable on sale of Coal/Tendu Leaves if the TDS is done under section 194Q by the buyer”
One may note that section 194Q of the Income Tax Act-1961 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.]
It may be noted that section 194Q(5) provides clear cut exemption if the amount is subject to TCS under any provision of the Act.
In short, if the seller of Tendu Leaves, Coal, etc is doing TCS then TDS U/s 194Q is not required to be done.
The next question arises whether the TDS will be applicable if the TCS is not done by the buyer because of the declaration furnished in Form No. 27C that the material would be used in manufacturing process. In such a case, the seller is not required to do the TCS as a result of exclusion provided in section 206C(1A).
One may note that in such a case where TCS is not done due to filing of declaration of Form No. 27C by the buyer then the TDS would be required to be done by the buyer.
The issue is also rightly clarified by the CBDT Circular No. 20 of 2021 Dated 25th November, 2021 wherein the following issue at Para 5.3 was aptly discussed. The same is reproduced hereunder:
5.3. Applicability of section 194Q of the Act in cases where exemption has been provided under section 206C (1 A) of the Act
5.3.1 Sub-section (I A) of section 206C of the Act provides that notwithstanding anything contained in sub-section (I) 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 (I)) 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 (I H) 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 (I) or subsection (I F) or sub-section ( I G). It has been represented that in case of goods which are covered under the provisions of sub-section (I) of the said section but exempted under sub-section
(IA), tax will not be collectible under either subsection ( I) or sub-section ( I H) of section 206C as the provisions of subsection (I H) 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 ( I H) 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.
The copy of the circular No. 20/2021 is enclosed herewith for the benefit of the readers.