Section 206C(1)

Section 206C(1) — the law in short

What the courts have decided on section 206C(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Viswateja Spinning Mills (P) Ltd v ITO (TDS), Ward-1 ITATHelps taxpayerValidity unconfirmed
  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?
  No, not where the waste goes back in as raw material. The Tribunal held that on a plain reading of Explanation (b) to s.206C the assessee ought not to have collected tax on sales of cotton waste, because material that is usable as such — here reused as raw material by open-ended spinning mills — does not answer the definition. It remitted the matter to the Assessing Officer to verify that the supplies went to open-ended spinning mills where the cotton waste is used as raw material, and then to allow the claim.
• Girishkumar Ramnarayan Shah v ITO (TDS) ITATCuts both waysValidity unconfirmed
  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?
  The Tribunal held that neither s.206C(1A) nor s.206C(1B) prescribes any date by which the buyer must give the seller the declaration in Form 27C, so a belated declaration cannot be shut out where the seller shows he filed it as soon as he received it and its genuineness is not doubted. It restored the whole matter to the Assessing Officer to verify the Forms 27C and, separately, to give effect to the first proviso to s.206C(6A) for the buyers from whom Form 27BA had been obtained.
• Manoj Kumar Jain, Prop. M/s Balaji Re-Rolling Mills v ITO (TDS), Kota ITATHelps taxpayerValidity unconfirmed
  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?
  On this order, no. The Jaipur Tribunal held that where there is no dispute that the declarations were made in the prescribed format and no dispute about their genuineness, a mere delay in filing the declaration does not defeat the claim, the breach being technical and liable to be condoned. It expressly noted that the Commissioner (Appeals) had relied on a Chennai Bench decision where Form 27C was not obtained within a reasonable time and Form 27BA was collected after a lapse of seven years, and held that those were not the facts before it.
• M/s Sri Jayabharath Timber Depot v ITO (TDS), Tirunelveli ITATHelps departmentValidity unconfirmed
  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?
  On this order, yes. The Chennai Tribunal read s.206C(1A) with s.206C(1B) and held that the seller must either collect TCS at the time of sale or obtain the Form 27C declaration and file a copy with the Commissioner by the seventh day of the month next following the month of receipt, so that a Form 27C produced for the first time during assessment proceedings is not within a reasonable time. It also rejected the alternative plea under the first proviso to s.206C(6A), holding that a Form 27BA obtained on 24 April 2021 — seven years after the end of the relevant assessment years — came too late for the immunity, and dismissed both appeals.
• Umeshkumar Harilal Shah v ITO, TDS-3, Ahmedabad ITATHelps departmentValidity unconfirmed
  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.
• Ramdas Trading Company v ITO (TDS), Alwar ITATCuts both waysValidity unconfirmed
  I only trade in scrap — I do not manufacture anything, and I sell in retail. Can s.206C still be fastened on me, and is there any time limit on the TCS order?
  Yes, it can. The Tribunal held that the contentions that the assessee is a trader and not a manufacturer, that the scrap was not generated by his own manufacturing or mechanical working of materials, and that a purchaser in retail sale is not a 'buyer', are all squarely covered against the assessee by the Special Bench decision in Bharti Auto Products. But it also held that although s.206C prescribes no limitation, proceedings under it can reasonably be guided by the limitation in s.201(3), and it sent the matter back to the Commissioner (Appeals) to decide that question.
• ITO (TDS) v Rakesh Kumar ITATHelps taxpayerValidity unconfirmed
  I did not collect TCS because I did not think what I sold was 'scrap'. The officer has levied penalty at a hundred per cent. Is a wrong but honest view a defence?
  Yes, where the belief is honest and founded on reasonable grounds. The Tribunal upheld the deletion of a penalty of Rs.12,80,988 under s.271CA, holding that a dealer who honestly believed the goods he sold were not 'scrap' within Explanation (b) to s.206C had reasonable cause, even though the Commissioner (Appeals) had rejected that belief on merits. It also weighed that the buyers had returned the income and paid the tax, so no demand for the tax itself had been raised and no loss was caused to the Revenue.
• 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 CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — s.206C(6A) first proviso, Form 27BA, and the two interest rates in s.206C(7) from 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I did not collect TCS but my buyer has filed his return and paid the tax. Am I still an assessee in default, and what interest do I owe?
  The first proviso to s.206C(6A) says a person responsible for collecting tax under sub-section (1) or sub-section (1C) who fails to collect is not to be deemed an assessee in default if the buyer or licensee or lessee has furnished his return of income under s.139, has taken the amount into account in computing income in that return, and has paid the tax due on the income declared — and the collector furnishes a certificate to that effect from an accountant in the prescribed form. Rule 37J prescribes that certificate as Form 27BA, to be furnished to the Director General of Income-tax (Systems) or his authorised person in the procedures, formats and standards that officer specifies.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.