The Assessing Officer says everything I sold as waste was 'scrap' and wants one per cent. What does the Act actually define as scrap, and what else is in the s.206C(1) table now?
Explanation clause (b) to s.206C defines 'scrap' as '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'. The definition has two limbs that must both be satisfied — an origin limb (waste and scrap from the manufacture or mechanical working of materials) and a condition limb (definitely not usable as such) — and it is the second limb that decides most disputes, because material which the buyer takes and uses as raw material is on its face usable as such.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.206C(1) and Explanation, as they stand from 1 April 2025. It bears on section 206C, section 206C(1), section 206C(1A), section 288(2), section 10(20) of the Income Tax Act 1961, in TDS Defaults, How Tax Law Is Read and Evidence & Burden of Proof matters.
The word is the most litigated in the section, and the two limbs pull in opposite directions. On the origin limb the Revenue has the better of it: nothing in Explanation (b) or in Explanation (c), which defines "seller", requires the seller to be a manufacturer or to have generated the scrap himself. Two Tribunals have said so in their own words: the Jaipur Bench in Ramdas Trading Company recorded that the contrary contentions are "squarely covered against the assessee by the decision of Special Bench of Tribunal in the case of Bharti Auto Products Vs. CIT-II", and the Ahmedabad Bench in Umeshkumar Harilal Shah held on the CBDT circular before it that "there is no requirement that the goods to be eligible for scrap should be produced/manufacture by the seller itself". The Special Bench decision itself has not been read, and nothing is stated here as its own reasoning. On the condition limb the taxpayer has the better of it: cotton waste reused as raw material by another spinner, rags and wipers cut to order, and ship-breaking material that is usable as such have all been held outside the definition. Practitioners should also know what changed in the table on 1 April 2025. Serial (v), 'Any other forest produce not being timber or tendu leaves — Two and one-half per cent', was omitted by Act No. 7 of 2025 with effect from 1 April 2025, and the words 'or any other forest produce (not being tendu leaves)' were inserted into serial (iii), so that forest produce obtained under a forest lease now sits at two per cent alongside timber rather than at two and one-half per cent under a separate entry. The same Act on the same date also cut the rate in serials (iii) and (iv) from two and one-half per cent to two per cent, so from 1 April 2025 every timber and forest-produce entry in the table stands at two per cent and the two and one-half per cent rate has disappeared from the table altogether.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Sub-section (1) requires every person being a seller, at the time of debiting the amount payable by the buyer to the buyer's account or at the time of receipt of such amount in cash or by cheque or draft or by any other mode, whichever is earlier, to collect from the buyer of goods of the nature specified in column (2) of the table a sum equal to the percentage in column (3). The table as printed on the current pages runs: (i) Alcoholic Liquor for human consumption — One per cent; (ii) Tendu leaves — Five per cent; (iii) Timber or any other forest produce (not being tendu leaves) obtained under a forest lease — Two per cent; (iv) Timber obtained by any mode other than under a forest lease — Two per cent; (v) omitted; (vi) Scrap — One per cent; (vii) Minerals, being coal or lignite or iron ore — One per cent. An Explanation to the sub-section provides that 'forest produce' has the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927. The Explanation at the end of the section defines, for the purposes of the section: 'accountant' by reference to the Explanation to s.288(2); 'buyer' with respect to sub-section (1) as a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table or the right to receive such goods, excluding a public sector company, the Central Government, a State Government, an embassy, High Commission, legation, commission, consulate and the trade representation of a foreign State and a club, and excluding a buyer in the retail sale of such goods purchased by him for personal consumption; 'scrap'; and 'seller' with respect to sub-sections (1) and (1F).
'Scrap' for the purposes of s.206C 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. The rate on scrap in the table is one per cent. With effect from 1 April 2025 serial (v) of the table, which carried other forest produce at two and one-half per cent, stands omitted, and forest produce other than tendu leaves obtained under a forest lease is charged at two per cent under serial (iii).
Not applicable — this is a statement of the statutory text as printed on the departmental section pages, with the amendment history taken from the footnote apparatus on the same pages.
"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;
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Handle my notice → Ask a CA on WhatsAppExplanation clause (b) to s.206C defines 'scrap' as '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'. The definition has two limbs that must both be satisfied — an origin limb (waste and scrap from the manufacture or mechanical working of materials) and a condition limb (definitely not usable as such) — and it is the second limb that decides most disputes, because material which the buyer takes and uses as raw material is on its face usable as such. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 206C, section 206C(1), section 206C(1A), section 288(2), section 10(20) of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.206C(1) and Explanation, as they stand from 1 April 2025. The word is the most litigated in the section, and the two limbs pull in opposite directions. On the origin limb the Revenue has the better of it: nothing in Explanation (b) or in Explanation (c), which defines "seller", requires the seller to be a manufacturer or to have generated the scrap himself. Two Tribunals have said so in their own words: the Jaipur Bench in Ramdas Trading Company recorded that the contrary contentions are "squarely covered against the assessee by the decision of Special Bench of Tribunal in the case of Bharti Auto Products Vs. CIT-II", and the Ahmedabad Bench in Umeshkumar Harilal Shah held on the CBDT circular before it that "there is no requirement that the goods to be eligible for scrap should be produced/manufacture by the seller itself". The Special Bench decision itself has not been read, and nothing is stated here as its own reasoning. On the condition limb the taxpayer has the better of it: cotton waste reused as raw material by another spinner, rags and wipers cut to order, and ship-breaking material that is usable as such have all been held outside the definition. Practitioners should also know what changed in the table on 1 April 2025. Serial (v), 'Any other forest produce not being timber or tendu leaves — Two and one-half per cent', was omitted by Act No. 7 of 2025 with effect from 1 April 2025, and the words 'or any other forest produce (not being tendu leaves)' were inserted into serial (iii), so that forest produce obtained under a forest lease now sits at two per cent alongside timber rather than at two and one-half per cent under a separate entry. The same Act on the same date also cut the rate in serials (iii) and (iv) from two and one-half per cent to two per cent, so from 1 April 2025 every timber and forest-produce entry in the table stands at two per cent and the two and one-half per cent rate has disappeared from the table altogether. If it applies to you, the first step is this: Take the two limbs of Explanation (b) separately and put the burden where it belongs: the Assessing Officer must show both that the material is waste and scrap from manufacture or mechanical working, and that it is definitely not usable as such.
Sub-section (1) requires every person being a seller, at the time of debiting the amount payable by the buyer to the buyer's account or at the time of receipt of such amount in cash or by cheque or draft or by any other mode, whichever is earlier, to collect from the buyer of goods of the nature specified in column (2) of the table a sum equal to the percentage in column (3). The table as printed on the current pages runs: (i) Alcoholic Liquor for human consumption — One per cent; (ii) Tendu leaves — Five per cent; (iii) Timber or any other forest produce (not being tendu leaves) obtained under a forest lease — Two per cent; (iv) Timber obtained by any mode other than under a forest lease — Two per cent; (v) omitted; (vi) Scrap — One per cent; (vii) Minerals, being coal or lignite or iron ore — One per cent. An Explanation to the sub-section provides that 'forest produce' has the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927. The Explanation at the end of the section defines, for the purposes of the section: 'accountant' by reference to the Explanation to s.288(2); 'buyer' with respect to sub-section (1) as a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table or the right to receive such goods, excluding a public sector company, the Central Government, a State Government, an embassy, High Commission, legation, commission, consulate and the trade representation of a foreign State and a club, and excluding a buyer in the retail sale of such goods purchased by him for personal consumption; 'scrap'; and 'seller' with respect to sub-sections (1) and (1F). The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. 'Scrap' for the purposes of s.206C 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. The rate on scrap in the table is one per cent. With effect from 1 April 2025 serial (v) of the table, which carried other forest produce at two and one-half per cent, stands omitted, and forest produce other than tendu leaves obtained under a forest lease is charged at two per cent under serial (iii).
Not applicable — this is a statement of the statutory text as printed on the departmental section pages, with the amendment history taken from the footnote apparatus on the same pages. In the words reproduced by the source cited on this page: ""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;"
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.206C(1) and Explanation, as they stand from 1 April 2025. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 206C, section 206C(1), section 206C(1A), section 288(2), section 10(20), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. 'Scrap' for the purposes of s.206C 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. The rate on scrap in the table is one per cent. With effect from 1 April 2025 serial (v) of the table, which carried other forest produce at two and one-half per cent, stands omitted, and forest produce other than tendu leaves obtained under a forest lease is charged at two per cent under serial (iii). It arises in TDS Defaults, How Tax Law Is Read and Evidence & Burden of Proof matters, on section 206C, section 206C(1), section 206C(1A), section 288(2), section 10(20) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Build the 'usable as such' record from the buyer's side: what the buyer did with the material, whether it went in as raw material, and what excise or GST classification it carried. That is the evidence that has carried the taxpayer cases. Do not argue that a trader is outside the section because he is not a manufacturer, or that scrap must be generated by the seller himself — the Special Bench in Bharti Auto Products rejected both, and a Tribunal will treat those contentions as covered against you. Do not argue that a retail purchaser is not a "buyer" because the sale was not by auction or tender: the Jaipur Tribunal in Ramdas Trading Company recorded, in its own words, that this contention "has been dealt with in detail and the matter is squarely covered against the assessee by the decision of Special Bench of Tribunal in the case of Bharti Auto Products Vs. CIT-II". The exclusion that does work is Explanation (aa)(i)(B), a buyer in the retail sale of such goods purchased by him for personal consumption — which is on the face of the statute. Check whether you are a 'seller' at all: an individual or HUF is one only if the preceding year's total sales, gross receipts or turnover exceeded one crore rupees in business or fifty lakh rupees in profession. For a period on or after 1 April 2025, do not apply a two and one-half per cent rate to timber or to forest produce at all: serial (v) is omitted, forest produce other than tendu leaves obtained under a forest lease now sits in serial (iii), and both serial (iii) and serial (iv) are charged at two per cent.
Still good law. The definition of 'scrap' in Explanation (b) has stood unchanged through every amendment traced. The table entries are as they appear on two separately published versions of the section, which agree word for word. No Finance Act text has been read. One proposition can be stated flatly. Anything applying a two and one-half per cent rate to forest produce for a period on or after 1 April 2025 is superseded by amendment: serial (v) of the table was omitted from that date and forest produce not being tendu leaves was brought into serial (iii), where the rate is two per cent. What a practitioner has to do with the rest. The definition of 'scrap' has two limbs, and a collection is bad unless both are answered — the material must arise from the manufacture or mechanical working of materials, and it must be definitely not usable as such because of breakage, cutting up, wear or other reasons. The second limb is where most disputes are won, and it turns on evidence of what the buyer in fact did with the material, so that evidence has to be gathered at the time of the sale and not at the appellate stage. Nothing in the Explanation requires the seller to have generated the scrap himself, so an argument built on the seller not being a manufacturer will not succeed on the definition alone. And the Form 27C machinery is separate from the charge: a finding that the material is not scrap does not by itself dispose of a default founded on the form not having been furnished. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Explanation clauses (a), (aa), (ab), (b) and (c) and the section 206C(1) table are taken from two separately published versions of the section, which print identical text. Both print serial (v) of the table as omitted. The words of the omitted entry, and its omission by Act No. 7 of 2025 with effect from 1 April 2025, come from footnote 20, which reproduces the omitted entry as "Any other forest produce not being timber or tendu leaves — Two and one-half per cent". That reproduction is independently confirmed against an older published version of the section, which prints serial (v) in those exact words at that exact rate. The footnote markers inside the table have been read directly rather than inferred, and they matter because they attach to different things. The inserted words "or any other forest produce (not being tendu leaves)" in serial (iii) carry footnotes 18 and 61 on the two versions, both reading "Ins. by Act No. 7 of 2025, w.e.f. 1-4-2025". The percentage in serials (iii) and (iv) carries footnotes 19 and 62, "Sub. for 'two and one-half' by Act No. 7 of 2025, w.e.f. 1-4-2025". The Explanation to sub-section (1) defining "forest produce" carries footnotes 21 and 64, also an insertion by the same Act on the same date — and it is that Explanation, not the words in serial (iii), that footnote 21 records. Explanation clauses (aa)(ii) and (ab) are printed as omitted on both versions, and no footnote for them has been read. Two limits. The amendment footnotes identify amending Acts by number only, and the correspondence of Act No. 7 of 2025 to the Finance Act 2025 has not been verified from any source read here. And the Special Bench decision in Bharti Auto Products has not been read; it is described on this page only as it was applied by the Jaipur Tribunal in Ramdas Trading Company, which is a separate entry, and which reproduced it in digest form rather than in the Special Bench's own words. Nothing on this page should be attributed to the Special Bench itself. The date in decided_on is the date from which the position stated takes effect, and not a decision date. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
'Scrap' for the purposes of s.206C 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. The rate on scrap in the table is one per cent. With effect from 1 April 2025 serial (v) of the table, which carried other forest produce at two and one-half per cent, stands omitted, and forest produce other than tendu leaves obtained under a forest lease is charged at two per cent under serial (iii).
TaxSphere, “Statutory position — the meaning of 'scrap' in the Explanation to s.206C, and the s.206C(1) table as it stands from 1 April 2025”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-206c-scrap-and-the-explanation-definitions/ (validity last checked 2026-09-08)
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I sold scrap without collecting TCS and only got the buyers' Form 27C declarations years later. Has the officer any answer to that, and what about buyers who have already paid tax?
I produced the buyers' Form 27C during the assessment, and later a Form 27BA from an accountant. The officer says both are too late. Is he right?
I collected the Form 27C declarations late and filed them late with the TDS officer. Can the department still raise a TCS demand on me?
I am a metal trader, not a manufacturer, and the scrap I sold never came off any process of mine. Does s.206C still catch me if I have no Form 27C?
