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?
Yes. The Tribunal accepted as undisputed that the assessee was not a manufacturer and that the scrap he sold did not come from his own manufacturing activity, and still upheld the demand, holding that on the CBDT circular the Assessing Officer relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself. Because the assessee had not filed the prescribed Form 27C, the tax and interest under s.206C were rightly charged and the appeal was dismissed.
Decided by the ITAT (Ms. Suchitra Kamble, Judicial Member (ITAT 'SMC' Bench, Ahmedabad)) on 2022-11-02, reported as I.T.A. No. 08/Ahd/2020, assessment year 2012-13. It bears on section 206C, section 206C(1), section 206C(1A), section 44AB, section Rule 46A of the Income Tax Act 1961, in TDS Defaults, How Tax Law Is Read and Evidence & Burden of Proof matters.
This carries the Revenue side of the scrap line at its bluntest, and on facts a practitioner meets constantly — a dealer in iron bara, MS steel, building materials, MS plate and other ferrous and non-ferrous metals who says he made nothing. The order shows the two arguments that actually decide such a case, and neither is the one the assessee led with. The first is Explanation (c): a trader is a 'seller' only if he answers the definition, and for an individual that turns on the preceding year's turnover — the assessee here did try that, saying his business was newly started and he was not liable to audit in the preceding year, but the point failed on the evidence rather than in principle, and it is the point worth building properly. The second is the declaration: had Form 27C been obtained from buyers who took the material for manufacturing, the collection duty would not have applied at all. Read this against Viswateja Spinning Mills, which shows that the argument that does work is 'the material was usable as such in the buyer's hands', not 'I am only a trader'.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee was engaged in the business of supply of iron bara, MS steel, building materials, MS plate and other ferrous and non-ferrous metals. An order under s.206C was passed by the Assessing Officer charging tax and interest on sales of scrap, and the Commissioner (Appeals) dismissed the appeal by an order dated 12 June 2018. The appeal to the Tribunal was filed 483 days late, supported by an affidavit that the assessee had been on medical treatment and recovering during the period. Before the Tribunal the assessee argued that TCS does not apply to the sale of scrap because he is not in manufacturing and acts as a trader; that on his reading of s.206C the duty arises only where the seller's accounts were audited under s.44AB in the immediately preceding financial year, and his business, carried on in the name of Kirti Enterprise, had newly started so that he was not liable to audit in any earlier year; that he had produced the audit report before the Commissioner (Appeals) as additional evidence under Rule 46A, which had been rejected on the footing that point 11 of the audit report disclosed no change in the method of accounting; and that on CBDT Circular No. 18 dated 21 May 2012 a seller is exempt from collection where the buyer furnishes Form 27C declaring that the goods are for manufacturing, processing or producing articles and not for trading.
The appeal was dismissed. The delay of 483 days was condoned on the affidavit filed (para 6). On the merits, although it was undisputed that the assessee was not a manufacturer and that the scrap he sold was not from any manufacturing activity of his own, the Tribunal held that on the CBDT circular relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself, and that the fact remained that the assessee had scrap for sale. Since the assessee had not filed the prescribed Form 27C, which alone would have exempted him from collecting tax under s.206C, the Assessing Officer and the Commissioner (Appeals) had rightly fixed the tax liability including interest, and there was no reason to interfere (para 9).
The Tribunal took the Special Bench decision in Bharti Auto Products as the starting point and recorded that scrap may have been bought and sold or may have arisen from manufacturing activity, the fact remaining that the assessee had scrap for sale. It then addressed the assessee's own reliance on CBDT Circular No. 18 dated 21 May 2012, which the Special Bench had not considered, and found that the circular in fact told against him because it states that there is no requirement that the goods, to be eligible for scrap, should be produced or manufactured by the seller itself. Having so held on the character of the goods, the only remaining escape was the s.206C(1A) declaration, and no Form 27C had been filed; the demand for tax with interest therefore stood (para 9).
But from the perusal of the said Circular which later issued by the CBDT it is stated that there is no requirement that the goods to be eligible for scrap should be produced/manufacture by the seller itself.
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Handle my notice → Ask a CA on WhatsAppYes. The Tribunal accepted as undisputed that the assessee was not a manufacturer and that the scrap he sold did not come from his own manufacturing activity, and still upheld the demand, holding that on the CBDT circular the Assessing Officer relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself. Because the assessee had not filed the prescribed Form 27C, the tax and interest under s.206C were rightly charged and the appeal was dismissed. This was decided by the ITAT (Ms. Suchitra Kamble, Judicial Member (ITAT 'SMC' Bench, Ahmedabad)) and bears on section 206C, section 206C(1), section 206C(1A), section 44AB, section Rule 46A of the Income Tax Act 1961. It is reported as I.T.A. No. 08/Ahd/2020, assessment year 2012-13. This carries the Revenue side of the scrap line at its bluntest, and on facts a practitioner meets constantly — a dealer in iron bara, MS steel, building materials, MS plate and other ferrous and non-ferrous metals who says he made nothing. The order shows the two arguments that actually decide such a case, and neither is the one the assessee led with. The first is Explanation (c): a trader is a 'seller' only if he answers the definition, and for an individual that turns on the preceding year's turnover — the assessee here did try that, saying his business was newly started and he was not liable to audit in the preceding year, but the point failed on the evidence rather than in principle, and it is the point worth building properly. The second is the declaration: had Form 27C been obtained from buyers who took the material for manufacturing, the collection duty would not have applied at all. Read this against Viswateja Spinning Mills, which shows that the argument that does work is 'the material was usable as such in the buyer's hands', not 'I am only a trader'. If it applies to you, the first step is this: If you are an individual or HUF, plead and prove Explanation (c) properly: file the preceding year's audit report or the turnover evidence before the Assessing Officer, not for the first time as additional evidence under Rule 46A before the Commissioner (Appeals).
The assessee was engaged in the business of supply of iron bara, MS steel, building materials, MS plate and other ferrous and non-ferrous metals. An order under s.206C was passed by the Assessing Officer charging tax and interest on sales of scrap, and the Commissioner (Appeals) dismissed the appeal by an order dated 12 June 2018. The appeal to the Tribunal was filed 483 days late, supported by an affidavit that the assessee had been on medical treatment and recovering during the period. Before the Tribunal the assessee argued that TCS does not apply to the sale of scrap because he is not in manufacturing and acts as a trader; that on his reading of s.206C the duty arises only where the seller's accounts were audited under s.44AB in the immediately preceding financial year, and his business, carried on in the name of Kirti Enterprise, had newly started so that he was not liable to audit in any earlier year; that he had produced the audit report before the Commissioner (Appeals) as additional evidence under Rule 46A, which had been rejected on the footing that point 11 of the audit report disclosed no change in the method of accounting; and that on CBDT Circular No. 18 dated 21 May 2012 a seller is exempt from collection where the buyer furnishes Form 27C declaring that the goods are for manufacturing, processing or producing articles and not for trading. The matter was decided on 2022-11-02 by the ITAT (Ms. Suchitra Kamble, Judicial Member (ITAT 'SMC' Bench, Ahmedabad)). On those facts the ITAT held as follows. The appeal was dismissed. The delay of 483 days was condoned on the affidavit filed (para 6). On the merits, although it was undisputed that the assessee was not a manufacturer and that the scrap he sold was not from any manufacturing activity of his own, the Tribunal held that on the CBDT circular relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself, and that the fact remained that the assessee had scrap for sale. Since the assessee had not filed the prescribed Form 27C, which alone would have exempted him from collecting tax under s.206C, the Assessing Officer and the Commissioner (Appeals) had rightly fixed the tax liability including interest, and there was no reason to interfere (para 9).
The Tribunal took the Special Bench decision in Bharti Auto Products as the starting point and recorded that scrap may have been bought and sold or may have arisen from manufacturing activity, the fact remaining that the assessee had scrap for sale. It then addressed the assessee's own reliance on CBDT Circular No. 18 dated 21 May 2012, which the Special Bench had not considered, and found that the circular in fact told against him because it states that there is no requirement that the goods, to be eligible for scrap, should be produced or manufactured by the seller itself. Having so held on the character of the goods, the only remaining escape was the s.206C(1A) declaration, and no Form 27C had been filed; the demand for tax with interest therefore stood (para 9). In the words reproduced by the source cited on this page: "But from the perusal of the said Circular which later issued by the CBDT it is stated that there is no requirement that the goods to be eligible for scrap should be produced/manufacture by the seller itself." The decision followed or applied Bharti Auto Products (Special Bench, ITAT) — referred to and treated as the settled position that scrap need not be generated by the seller.
It was decided by the ITAT on 2022-11-02 and is reported as I.T.A. No. 08/Ahd/2020, assessment year 2012-13. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 206C, section 206C(1), section 206C(1A), section 44AB, section Rule 46A, 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 helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. The delay of 483 days was condoned on the affidavit filed (para 6). On the merits, although it was undisputed that the assessee was not a manufacturer and that the scrap he sold was not from any manufacturing activity of his own, the Tribunal held that on the CBDT circular relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself, and that the fact remained that the assessee had scrap for sale. Since the assessee had not filed the prescribed Form 27C, which alone would have exempted him from collecting tax under s.206C, the Assessing Officer and the Commissioner (Appeals) had rightly fixed the tax liability including interest, and there was no reason to interfere (para 9). 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 44AB, section Rule 46A of the Income Tax Act 1961, and was decided by Ms. Suchitra Kamble, Judicial Member (ITAT 'SMC' Bench, Ahmedabad). 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. Obtain Form 27C from every buyer who takes the material for manufacturing, processing or producing articles or for generation of power — the absence of the form was decisive here. Do not rest on 'I did not generate the scrap' or 'I am a trader': the Tribunal treated that as answered both by the Special Bench and by the CBDT circular. Direct the evidence instead at whether the material was definitely not usable as such in the buyer's hands. If the appeal is late, file an affidavit explaining the delay — a 483-day delay was condoned here on an affidavit of medical treatment, so do not abandon a good ground for delay alone.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later Tribunal order citing this one has been found, and no Gujarat High Court appeal from it has been traced. The holding — that a scrap trader who does not obtain and file Form 27C remains liable under section 206C notwithstanding the buyer's declared manufacturing use — has neither been followed nor questioned by any later Bench. Weigh it for what it is. It is a single Bench order, and paragraph 9 carries the whole of the finding in loosely drafted terms; the editor's note sets out why the sentence attributed there to the Special Bench in Bharti Auto Products is not reproduced here as a quotation, and why nothing is asserted about the contents of the circular the Tribunal relies on. Neither the Special Bench decision nor the circular has been read for this entry. Two things about how far it carries. The assessee's own case — that he was a trader who made nothing, and that his business was newly started so that he was not liable to audit in the preceding year — failed on the evidence and not in principle. The Explanation (c) turnover point is therefore open and is the argument worth building properly. And the order says nothing at all about the position where Form 27C IS obtained and filed; on the section's own words that declaration removes the collection duty, and that is the answer this order records rather than decides. What would displace it: a decision holding that the definition of 'scrap' in Explanation (b) to s.206C is not satisfied where the material never arose from the seller's own manufacture or mechanical working — which is the argument that has succeeded elsewhere, and which this Bench treated as answered by the Special Bench and by the circular. 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 order's own numbered paragraphs run 1 to 10; paragraph 8 is a one-line record of the Departmental Representative's submission and paragraph 9 carries the entire finding, ending with the dismissal, which paragraph 10 then repeats. Paragraph 9 is loosely drafted — its sentence 'The decision of the Special Bench in case of Bharti Auto Product (supra) was observed that scrap means wasted which is definitely not usable as it is' is not a quotation of the Special Bench and is not reproduced here as one, and the passage does not make clear whether the Tribunal thought the circular supported or displaced the Special Bench. The Special Bench decision in Bharti Auto Products has NOT been read. The CBDT circular the Tribunal relies on is identified in the order only as 'Circular No. 18 dated 21.05.2012'; that circular has NOT been read, and nothing is asserted about its contents beyond the words the Tribunal itself uses. The assessee's argument at paragraph 7 that s.206C applies only where the seller's accounts were audited under s.44AB in the immediately preceding year is a loose rendering of Explanation (c), which for an individual or HUF is expressed as a turnover threshold rather than as an audit requirement; the order does not correct it and this entry does not adopt it. What the order does not contain matters as much as what it does. It nowhere states the amount of the demand or the period it covers, so a reader matching it to his own facts has the reasoning and not the quantum. There is no finding on what the buyers in fact did with the material, and none on whether any buyer would have given a declaration had one been asked for — the point failed for want of the Form 27C that s.206C(1A) requires, and the character of the goods under s.206C(1) was treated as settled against the assessee before that stage was reached. The ruling under Rule 46A deserves a second look. The additional evidence the assessee sought to file before the Commissioner (Appeals) was the audit report under s.44AB, and it was rejected on the footing that point 11 of that report disclosed no change in the method of accounting. That reason does not engage the use the assessee wanted to make of the report, which was to show what his position had been in the preceding year for the purposes of Explanation (c), and the Tribunal did not revisit the rejection. The chronology is worth noting as well: the year in issue is 2012-13, the order of the Commissioner (Appeals) is of 12 June 2018, the appeal to the Tribunal was 483 days late, and the single-member Bench decided it on 2 November 2022. 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.
The appeal was dismissed. The delay of 483 days was condoned on the affidavit filed (para 6). On the merits, although it was undisputed that the assessee was not a manufacturer and that the scrap he sold was not from any manufacturing activity of his own, the Tribunal held that on the CBDT circular relied on there is no requirement that goods, to be eligible as scrap, be produced or manufactured by the seller itself, and that the fact remained that the assessee had scrap for sale. Since the assessee had not filed the prescribed Form 27C, which alone would have exempted him from collecting tax under s.206C, the Assessing Officer and the Commissioner (Appeals) had rightly fixed the tax liability including interest, and there was no reason to interfere (para 9).
TaxSphere, “Umeshkumar Harilal Shah v ITO, TDS-3, Ahmedabad”, https://taxnotice.vittsphere.com/caselaw/case/umeshkumar-harilal-shah-scrap-trader-liable-without-form-27c/ (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?
My spinning mill sells the cotton waste that comes off the process. The TDS officer says that is scrap and wants one per cent. Is it?
