LI Network
Published on: December 29, 2023 at 21:40 IST
In a recent verdict, the Madras High Court has clarified that empty liquor bottles cannot be classified as scrap, and the Tax Collected at Source (TCS) provisions are not applicable in such cases.
Justice C. Saravanan presided over the bench and emphasized that the petitioner, engaged in the retail sale of liquor, neither owns the bottles nor generates scrap, as defined by the Income Tax Act, 1961.
The Court rejected the application of Sections 206C, 206CC, and 206CCA of the Income Tax Act, 1961, against the petitioner. These sections were invoked based on an alleged failure to collect 1% tax on 99% of the license fee paid to the government, with 1% retained as an agency commission.
The Court deemed such invocation as misplaced and unwarranted, considering the nature of the petitioner’s activities.
The petitioner, Tamil Nadu State Marketing Corporation Ltd., operates retail liquor shops under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003.
The case arose from a dispute regarding the necessity of collecting TCS from bar licensees under Section 206C of the Income Tax Act, 1961, for the sale of empty liquor bottles treated as scrap.
The petitioner argued that it does not engage in the mechanical working of materials leading to the generation of scrap.
The empty bottles left by consumers in the bars are not the property of the petitioner, and the petitioner does not sell them. The court accepted this argument, stating that the petitioner has no ownership rights over the bottles after liquor sales.
The bottles are collected by independent bar contractors through a tender process, who sell them on their own behalf, not on behalf of the petitioner.
The court further noted that there is no “manufacture” or generation of “scrap” from the mechanical working of materials in this scenario.
Therefore, the liability under Section 206C of the Income Tax Act, 1961, does not apply. The judgment underscores the specific circumstances and nature of the petitioner’s activities, affirming that TCS provisions are not applicable to the sale of empty liquor bottles in this context.
Case Citation: M/s. Tamil Nadu State Marketing Corporation Ltd. v. DCIT