AI Structured Summary
Not yet generated for this judgment
Judgment
Ajay Kumar Mittal, J.
This order shall dispose of ITA Nos. 144 to 147, 274, 275, 300 and 301 of 2013 as according to the learned counsel for the parties, the facts involved in all the appeals for the assessment years 2007-08, 2008-09, 2009-10 and 2010-11 are similar and can be disposed of by one common order. However, the facts are being extracted from ITA No. 144 of 2013. ITA No. 144 of 2013 has been preferred by the appellant under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the consolidated order dated 19.11.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, "the Tribunal'') in ITA No. 311(ASR)/2012, for the assessment year 2007-08. It was admitted on 24.2.2014 to consider following substantial questions of law:--
"i) Whether on the facts and circumstances of the case, the Hon''ble ITAT is correct in law in holding that the sale of bagasse is not covered under the definition of scrap as per explanation (b) to Section 206C of the Income Tax Act, 1961?
ii) Whether on the facts and circumstances of the case, the Hon''ble ITAT is right in law in holding that the assessee is not liable to collect tax at source under Section 206C(1) of the Income Tax Act, 1961 in absence of declaration/certificate in Form No. 27C in view of sub-section (1A) to Section 206C of the Act?"
A few facts relevant for the decision of the controversy involved as narrated in ITA No. 144 of 2013 may be noticed. The assessee is a cooperative society and is engaged in manufacturing of sugar. On 29.12.2010, an inspection under section 133A of the Act was carried out at the respondent Sugar mill. It was noticed by the Inspecting officer that the respondent assessee was selling molasses and bagasse generated during the manufacturing process to different persons without collecting tax at source under section 206C of the Act. The assessee was given an opportunity to explain how the provisions of Tax Collection at Source (TCS) were not applicable. The assessee submitted that the provisions of TCS under section 206C of the Act were not applicable on the sale of those two items i.e. Molasses and bagasses since molasses generated during the manufacturing process could not be termed as scrap for the purpose of this section. It was claimed that this was the byproduct of the process of manufacture. Molasses was different from scrap as it was a distinct product produced during the course of manufacture of sugar. In respect of bagasse, it was explained that the same was also used as bio fuel and renewable resource in the manufacture of pulp and paper products and building material and was not scrap. It was held that the material sold by the respondent assessee as waste was not usable as such but required a number of processes before being able to put to use. Therefore, the assessee was liable to collect tax at source on the sale of molasses. In respect of bagasse, it was held that the same was being sold to seller who used it for the manufacture of pulp, paper and building material. Thus, the assessee was in default and liable to pay the tax involved to the credit of Central Government account. The Assessing officer calculated the amount of default and also held the assessee to be liable to pay interest till the date of the passing of the order vide order dated 23.3.2011, Annexure A.1. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 28.5.2012, Annexure A.2, the appeal was partly allowed. The CIT(A) upheld the action of the Assessing officer and also in charging interest under section 206C(6) of the Act in respect of sale of molasses. However, in respect of sale of bagasse by the assessee, the CIT(A) held that the assessee was not liable to collect tax at source under section 206C(1) of the Act and consequent demand of interest was also set aside. Not satisfied with the order of CIT(A), the assessee as well as the revenue filed separate appeals before the Tribunal. Vide order dated 19.11.2012, Annexure A.3, the appeals of the revenue were dismissed whereas appeals filed by the assessee were allowed. Hence the instant appeals by the revenue.
We have heard learned counsel for the parties and perused the record.
In ITA Nos. 274, 275, 300 and 301 of 2013, the primary issue is whether molasses would fall within the definition of ''scrap'' or ''byproduct''. Similarly, in ITA Nos. 144 to 147 of 2013, the point for adjudication is whether bagasse is ''scrap'' or will be treated as byproduct.
The question that arises for consideration is whether the molasses and bagasse sold by the assessee are scrap as per definition contained in Explanation (b) to section 206C of the Act so as to make it liable for collection of tax at source on such sale under section 206C of the Act.
Learned counsel for the revenue contended that the assessee is manufacturing sugar and two products are generated - molasses and bagasse. Section 206C of the Act has to be seen from the angle of the seller. Sugar mill is the seller. The two products are thus scrap for the sugar mill. The finding of the Assessing Officer had been confirmed by the CIT(A) that molasses is a scrap in ITA No. 144 to 147 of 2013 whereas in other appeals contrary view was taken relating to bagasse. It was further submitted that section 206C(1A) of the Act was not complied with.
On the other hand, learned counsel for the assessee submitted that the bagasse and molasses were not scrap for the assessee. The same were byproducts and therefore, provisions of Section 206C of the Act were not applicable. The order passed by the Tribunal was supported by the learned counsel. Support was also drawn from the Sugarcane (Control) Order 1966 (in short, "the Control Order") issued by the department of Food, Ministry of Agriculture and Irrigation Government of India on 16.7.1966 to submit that the molasses and bagasse are byproducts as is evident from Clause 3(f) of the Control Order.
After hearing learned counsel for the parties, we do not find any merit in these appeals.
Before dealing with the issues involved, it would be apposite to refer to the relevant provisions:
"206C (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
Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003 and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003 comes into force, of debiting of the amount payable by the buyer to the account of the buyer or 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 as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003.
(1A) 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 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 and not for trading purposes.
XX XX XX XX XX XX XX XX
Explanation - For the purposes of this section -
(a)...
(b) ''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;......"
Under Sub-section (1) of Section 206C of the Act, the table given thereunder specifies the percentages to be collected at source by the seller in respect of different commodities to which the section applies. The buyer who is resident in India can give declaration in Form 27C to the seller that any of the goods enumerated in the table are to be utilized for the purposes of manufacturing processing or producing articles or things and not for trading purposes as per sub-section (1A) and accordingly, the provisions of sub-section (1) shall not apply in that situation. According to Explanation (b) to section 206C of the Act, 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. ''Scrap'' as per dictionary meaning is small piece, a payment or amount of something especially one that is leftover after greater part has been used whereas ''Waste'' is eliminated or discarded as no longer useful or required. In 21st Century dictionary, by-product'' is described as anything produced in the course of making another thing; secondary or incidental product and often commercially important product that is formed at the same time as the main product during a chemical reaction or manufacturing process. In the absence of any meaning assigned to ''molasses'' under the Act, one has to fall back on the dictionary meaning. ''Molasses'' is the thickest kind of treacle, left over at the very end of the process of refining raw sugar. It is produced as a result of processing sugarcane into sugar when sugarcane juice is boiled to obtain sugar.
Having noticed the dictionary meaning of ''molasses'', it would be expedient to advert to the uses for which molasses can be utilised. As per version of the assessee, molasses can be used for the following purposes:--
"Uses of molasses
Molasses can be used as the base material for fermentation into rum.
Molasses is commonly used in dark brewed beverages such as stout and very heavy dark ales.
Molasses is added to some brands of tobacco used for smoking through a Middle Eastern water pipe (e.g. hookah, shisha, narghile etc.). It is mixed into the tobacco with glycerin and flavorings; sometimes it is used with honey and other syrups or fully substituted by them.
Blackstrap molasses may also be used as an iron supplement for those who cannot tolerate the constipation associated with other iron supplementation.
Molasses is used as an additive in livestock feeds. Molasses is used in fishing ground bait.
Chemical
Molasses can be used as the carbon source for in situ remediation of chlorinated hydrocarbons.
Molasses is blended with magnesium chloride and used for deicing.
In Australia, molasses is fermented to produce ethanol for use as an alternative fuel in motor vehicles.
Industrial
Molasses can be used as a chelating agent to remove rust where a resulted part stays a few weeks in a mixture of 1 part molasses and 10 parts water.
Molasses can be used as a minor component of mortar for brickwork.
Ink rollers on printing presses were originally cast during a mixture of molasses and glue.
Horticultural
Molasses can be added to the soil of almost any plant to promote microbial activity."
Thus, keeping in view the definition and the uses of molasses, it cannot be termed as scrap or waste so as to fall under Explanation (b) of Section 206C of the Act.
Similarly, ''Bagasse'' is the fibrous matter that remains after sugarcane is crushed to extract juice. The utility of ''Bagasse'' as enunciated by the assessee is summarized as under:--
"Bagasse
Fuel
Bagasse is often used as a primary fuel source for sugar mills; when burnt in boilers, it produces sufficient heat energy to generate steam for making electricity which fulfills all the needs of steam as well as power to operate the sugar mill for manufacturing sugar which is main product of the sugar mill.
Paper
Around 5-10% of paper production worldwide is produced from agricultural crops, valuing agricultural paper production at between $5 and $10 billion. One of the most notable of these is bagasse. Paper production is the second largest revenue stream from bagasse. The largest is electricity cogeneration.
Other uses
Bagasse is also made into cattle feed whereby it is mixed with molasses. The resulting byproduct has been marketed in Australia as ''cow candy''."
The assessee had sold the bagasse to M/s. ABC Paper Mills Limited for being used for the manufacture of pulp, paper and building materials. Thus, ''Bagasse'' also would not satisfy the test of being scrap or waste under Section 206C of the Act.
The molasses and bagasse are byproducts of manufacturing process. They are distinct products and are marketable as such. The value and utility attached to these products is much more than describing them as mere waste or scrap. It is, thus, concluded that the ''molasses'' and ''Bagasse'' do not satisfy the test of being scrap or waste under Section 206C of the Act. Infact, it is a by-product as it has several uses noticed herein above. Clause 3(f) of the Control Order dated 16.7.1966 describes molasses and bagasse as by-product as under:--
"3(f). the realization made from sale of by products viz. Molasses, bagasse and press mud or their imputed value."
In so far as molasses is concerned, CIT(A) had concurred with the Assessing Officer to hold that it was scrap and Section 206C of the Act was attracted. However, the Tribunal reversed the said findings as under:--
"7. We have heard both the parties and perused the relevant material available with us alongwith the orders passed by the Revenue Authorities as well as the documentary evidence filed by the Ld. counsel for the assessee. The issue under consideration depends upon the interpretation of the meaning of scrap as it provided in Explanation (b) to Section 206C of the Act. For the sake of convenience, the same is reproduced as under:
"Explanation - For the purposes of this section,-
a.............
aa.......................
ab.................
[(b) "''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;"
7.1. The Hon''ble Delhi High Court in the case of Commissioner of Income Tax Vs. Deep Chand, relied upon the decision of the Hon''ble Supreme Court 7 ITA No. 327 to 330(Asr)/20l2 in the case of Gurudevdatta VKSSS Maryadit and Others Vs. State of Maharashtra and Others, in which it was held as under:
"It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the Legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute."
7.2. By following the above decision, the Hon''ble High Court held as under:
"It is now a well settled principle of law that a literal meaning should be attributed to a statute. The golden rule of interpretation should ordinarily be adhered to."
7.3. The ordinary meaning of scrap and waste, as have been provided in Oxford English Dictionary provides
(a) Scrap - Small piece or amount of something especially one that is leftover after part has been used - material discarded for reprocessing.
(b) Waste - eliminated or discarded as no longer useful or required."
7.4. The ordinary meaning of scrap and waste thus has a similarity in words. Ordinarily, the word "AND" is used in a conjunctive sense. This word is used to connect clauses or sentences or to coordinate words in the same clauses.
7.5. The explanation to section 206C of the IT Act provides the meaning of scrap means "waste and scrap" from the manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. In the above definition the important words used in the definition of scrap are "waste and scrap" -"from manufacture" and "which is". The word "waste and scrap" are one item. Thereafter, the word used is "from" the manufacture or mechanical working of material. It would mean that the waste and scrap being one item should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the words waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. Thereafter, the word used in "which is" definitely not usable. The word "is" as used in this definition of the scrap meant for singular item i.e. "waste and scrap". The word waste "which is" denotes to singular item and thus the singular item would be waste and scrap. The words waste and scrap thus cannot be read differently.
7.6. We have thoroughly gone through the findings of the Ld. first appellate authority on the issue in dispute and we are of the view that the findings of the Ld. first appellate authority are not based on any material or evidence and the Molasses would not form part of the definition as provided in Explanation (b) to section 206C of the Act. Thus, the Explanation has wrongly been applied in the case of the assessee because the assessee is engaged in the extraction of sugar from sugar-cane and the sugar. Molasses is produced as by-product. It is obtained when sugarcane juice is boiled to obtain sugar. Molasses is by-product arise during the processing of sugarcane. It is not wastage and scrap as discussed in the foregoing paragraphs.
7.7. As regards the mechanical working of materials that the Molasses is obtained when the sugar is crystallized from sugarcane juice after boiling and clarifying. The process of crystallization takes place when the sugarcane juice is saturated to such an extent that the sugarcane juice separates into sugar crystals and molasses and that is the stage where molasses and sugar crystals are separated, no mechanical working of materials is involved.
7.8. Keeping in view the aforesaid discussions alongwith various decisions rendered by the Hon''ble Supreme Court as well as the Hon''ble High Courts, we are of the view that Molasses is not a scrap as held by the Revenue Authorities in the impugned orders. It is not waste or scrap and cannot be used as such. Thus it does not fall within the meaning of scrap as defined in Explanation (b) to section 206C of the Act. Therefore, the assessee cannot be held to be in default and is not required to deduct tax under section 206C(6) of the Act on the molasses and no interest could be charged under Section 206(7) of the Act, as charged by the Revenue Authority in the impugned order. As pointed out in the foregoing paragraphs that the Ld. first appellate authority has deleted the addition on account Bagasses itself in the impugned years, which has been upheld by this Bench in the appeal filed by the Revenue vide order dated 19.11.2012 in assessee''s own case in ITA Nos. 311 to 314(Asr)/2012 [ITO, (TDS)-1, Jalandhar v. Ms Nawanshhar Co-op. Sugar Mills Ltd., Nawanshhar,. The AO has made the addition on account of Molasses on the similar analogy as applicable on the sale of Bagasses but the Id., CIT(A) has wrongly made the addition in dispute by upholding the action of the AO in holding the assess to be in default under section 206C(6) of the Act in respect of sale of Molasses. As per detailed discussions above, the definition of scrap clearly establishes that the Molasses is not a scrap. We, accordingly, cancel the impugned order on the issue in dispute by accepting the appeal filed by the assessee. Thus, the appeal of the assessee is allowed."
The CIT(A) after considering the matter, held that bagasse was a byproduct and not scrap or waste. It was noticed as under:--
"15. As far as bagasse is concerned, I find that apart from the use of bagasse for manufacturing paper by which use alone it would fall in the same category as molasses for the reasons discussed above, it is quite often and commonly used as a fuel, usually in the sugar mills themselves. The sugarcane fibrous waste is initially moist after crushing, but most mills use them as fuel after drying. Hence, even though bagasse is in the nature of scrap and waste because of its nature, since it can be used directly as a fuel, I hold that it should not be considered as scrap for the purposes of section 206C of the Act."
The Tribunal concurred with the findings recorded by the CIT(A).
The Tribunal held that bagasse and molasses both are byproducts and not scrap or waste. We do not find any error or infirmity in the approach of the Tribunal. As a result, ''molasses'' and ''bagasse'' in the present case do not fall within the scope of scrap under the provisions of section 206C(1) and therefore no tax collected at source was required to be made by the assessee and in such a situation, demand of 1% of the sale price was unjustified. Once sub-section (1) of Section 206C was not applicable, equally sub-section (1A) thereof would also have no applicability to the present case.
In view of the above, substantial questions are answered in favour of the assessee in all the appeals and against the revenue. Consequently, all the appeals stand dismissed.