CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · BB.—COLLECTION AT SOURCE (TCS)
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · BB.—COLLECTION AT SOURCE (TCS)
Section 206C — Tax Collection at Source (Alcoholic Liquor, Forest Produce, Scrap, Motor Vehicles, LRS, etc.)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The charging-cum-machinery hub of Part BB and by far the most heavily litigated TCS provision. Carries amendments up to the Finance Act 2025 (inter alia, revised rates and the sunset of sub-section (1H) from 1-4-2025).
Finance Act, 2026: No amendment. The Finance Act 2026 makes no change to section 206C. (The substituted offence provision in section 276BB, effective 1 March 2026, refers to — but does not amend — section 206C.)
Mechanism: The seller (or grantor of a right) collects a percentage of the sale consideration from the buyer at the time of debit or receipt, whichever is earlier, and pays it to the credit of the Central Government; the sum collected is deemed payment of the buyer's tax (sub-section (4)).
Litigation profile: Treatise-grade. The decisive questions are: charge versus machinery; the 'buyer'/'seller' gateway (auction/tender versus fixed price; retail/personal-consumption exclusion); whether goods are 'forest produce'/'timber' or 'scrap'; the reach of sub-section (1C) to mining/parking/toll rights; the Form 27C declaration; and default, the buyer-paid shield, interest and section 271CA penalty.
A. SECTION COMMENTARY
Section 206C is the charging-cum-machinery hub of Part BB. Where Part B (sections 192–206B) casts the burden of withholding upon the payer of income, Part BB inverts the architecture: it fastens the collection obligation upon the seller (or the grantor of a right), who must collect a percentage of the sale consideration from the buyer at the moment of debit or receipt, whichever is earlier, and pay it over to the Central Government. The provision began life in 1988 as a counter-evasion device aimed at notoriously under-assessed trades — country liquor, forest produce, timber and scrap — where the buyer was frequently outside the tax net; it has since been progressively widened, by successive Finance Acts, into a broad-spectrum information-and-collection net covering motor vehicles (1F), foreign remittances and overseas tour packages under the Liberalised Remittance Scheme (1G), and, for a brief window, the residuary sale of goods above fifty lakh rupees (1H, now sunset from 1 April 2025).
Charge versus machinery — the conceptual foundation
The single most important characterisation, settled by the Supreme Court, is that section 206C is not itself a charging provision. It is a machinery for the collection of tax akin to advance tax; the charge remains in sections 4 and 5, and the sum collected is, by sub-section (4), "deemed to be a payment of tax on behalf of the person from whom the amount has been collected". Two consequences follow. First, the collection apparatus presupposes — it does not create — an underlying liability; the buyer remains free to establish at assessment that his true liability is lower (hence the lower-rate certificate under sub-sections (9)–(10) and the section 206C(12) exemption-by-notification power). Second, because the section is machinery, its language is construed to give effect to the collection scheme without enlarging the substantive charge.
Who is a 'seller' and who is a 'buyer'
The twin definitions in the Explanation are the gateway to liability. 'Seller' (for sub-sections (1) and (1F)) is confined to Government, local authorities, statutory corporations, companies, firms and co-operative societies, plus individuals/HUFs above a turnover threshold — an ordinary small trader is therefore outside the net. 'Buyer' for sub-section (1) is critically defined as one who 'obtains in any sale, by way of auction, tender or any other mode', the goods specified — and expressly excludes a buyer in retail sale for personal consumption and a public sector company. The Supreme Court has read the auction/tender language purposively: a vendor who acquires goods at a State-fixed price under a permit, rather than by competitive bid, is not a 'buyer', whereas one who secures vending rights by auction is. The buyer/seller definitions, not the rate table, decide most TCS disputes.
'Forest produce', 'timber' and the manufacture line
Sub-section (1) bites on timber and 'any other forest produce (not being tendu leaves) obtained under a forest lease', and the Explanation imports the State forest law / Indian Forest Act, 1927 meaning of 'forest produce'. A recurring battleground is the point at which forest produce ceases to be forest produce: once logs are sawn, sized and converted in an authorised sawmill into a distinct commercial article, the High Courts have held the product is no longer 'forest produce' and falls outside section 206C(1). The same manufacture/new-product reasoning recurs in the scrap cases.
The 'scrap' controversy
Explanation (b) 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'. Two questions dominate. (i) Must the scrap have arisen from a manufacturing/mechanical-working process? The Tribunal has consistently held that the words 'from the manufacture or mechanical working of materials' are integral — items that are simply re-usable second-hand goods, or that never passed through any manufacturing process, are not 'scrap'. (ii) Must the seller himself be the manufacturer? The Rajkot Special Bench answered no — a trader or importer who sells qualifying waste-and-scrap is within section 206C, the scrap need not be generated by the seller's own plant. The two propositions are reconciled thus: the material must objectively be manufacturing waste 'not usable as such', but the seller need not be the one who manufactured it.
Sub-section (1C) — rights in parking lots, toll plazas, mines and quarries
Sub-section (1C) extends TCS to the grant of a lease, licence or contract transferring a right or interest in a parking lot, toll plaza, mine or quarry (a public sector company being excluded). The recent Chhattisgarh High Court line, affirmed by the Supreme Court on dismissal of the Department's SLP, confines (1C) to a lawful transfer of a right or interest generating royalty or lease-rent; a compounding fee or fine extracted from an illegal miner — who holds no lease or licence — is not 'royalty' and triggers no collection obligation. The provision attaches to the lawful grant of the right, not to every receipt connected with a mineral.
Sub-sections (1F)–(1H) — the modern expansion
Sub-section (1F) (motor vehicles above ten lakh rupees) and sub-section (1G) (LRS remittances and overseas tour packages) convert section 206C into an information tool over high-value consumption and outbound foreign exchange; the (1G) rate structure, repeatedly recalibrated between 2020 and 2025, now turns on remittance purpose (education/medical versus other) and on threshold (ten lakh rupees). Sub-section (1H) — the residuary 0.1% collection on sale of goods above fifty lakh rupees — overlapped from inception with the buyer-side TDS in section 194Q; CBDT Circular 13/2021 resolved the clash by giving 194Q primacy, and the Finance Act 2025 has since omitted (1H) with effect from 1 April 2025, leaving 194Q to occupy the field. These provisions are, as yet, judicially almost untested.
Default, the buyer-paid shield, interest and limitation
A seller who fails to collect remains liable to pay the tax (sub-section (6)) and is deemed an assessee in default (sub-section (6A)) — but the first proviso to (6A) imports the Hindustan Coca-Cola logic into TCS: where the buyer or lessee has filed his return, included the amount, and paid the tax due, and an accountant's certificate (Form 27BA) is furnished, the seller is not in default. Interest under sub-section (7) is bifurcated (1% per month to the date of collection; 1.5% thereafter to payment) and, where the buyer-paid shield applies, runs only to the date the buyer furnished his return. A six-year limitation now caps section (6A) orders (sub-section (7A)). The lower-rate certificate (sub-sections (9)–(10)), the Form 27C self-use declaration (sub-sections (1A)–(1B)), and the penalty under section 271CA (read with the 'reasonable cause' relief in section 273B) complete the machinery.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Amendment foot-note markers have been resolved into the current operative text; the editorial marker “***” denotes text omitted by the Legislature.
Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
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 — Sl. No. (1) / Nature of goods (2) / Percentage (3): (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) ***; (vi) Scrap — One per cent; (vii) Minerals, being coal or lignite or iron ore — One per cent:
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.
Explanation.—For the purposes of this sub-section, "forest produce" shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927 (16 of 1927).
(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 or for the purposes of generation of power and not for trading purposes.
(1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him.
(1C) Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as "licensee or lessee") for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease 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 — Sl. No. (1) / Nature of contract or licence or lease, etc. (2) / Percentage (3): (i) Parking lot — Two per cent; (ii) Toll plaza — Two per cent; (iii) Mining and quarrying — Two per cent.
Explanation 1.—For the purposes of this sub-section, "mining and quarrying" shall not include mining and quarrying of mineral oil. Explanation 2.—For the purposes of Explanation 1, "mineral oil" includes petroleum and natural gas.
(1D) *** (1E) ***
(1F) Every person, being a seller, who receives any amount as consideration for sale of— (i) a motor vehicle; or (ii) any other goods, as may be specified by the Central Government by notification in the Official Gazette, of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.
(1G) Every person,— (a) being an authorised dealer, who receives an amount, for remittance from a buyer, being a person remitting such amount under the Liberalised Remittance Scheme of the Reserve Bank of India; (b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:
Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than ten lakh rupees in a financial year:
Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to twenty per cent of the amount or aggregate of the amounts in excess of ten lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for purposes other than education or medical treatment:
Provided also that the authorised dealer shall not collect the sum if the amount being remitted out is a loan obtained from any financial institution as defined in clause (b) of sub-section (3) of section 80E, for the purpose of pursuing any education:
Provided also that the seller of an overseas tour programme package shall collect a sum of twenty per cent of the amount or aggregate of amounts in excess of ten lakh rupees received from the buyer in a financial year:
Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:
Provided also that the provisions of this sub-section shall not apply, if the buyer is,— (i) liable to deduct tax at source under any other provision of this Act and has deducted such amount; (ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein:
Provided also that the sum to be collected under this sub-section on or after the 1st day of July, 2023 and before the 1st day of October, 2023, shall be collected in accordance with the provisions of this sub-section as they stood on the 1st day of April, 2023.
Explanation.—For the purposes of this sub-section,— (i) "authorised dealer" means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security; (ii) "overseas tour programme package" means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount:
Provided also that nothing contained in the provisions of this sub-section shall apply from the 1st day of April, 2025.
Explanation.—For the purposes of this sub-section,— (a) "buyer" means a person who purchases any goods, but does not include,— (A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or (B) a local authority as defined in the Explanation to clause (20) of section 10; or (C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein; (b) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(1-I) If any difficulty arises in giving effect to the provisions of sub-section (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person liable to collect the sum.
(2) The power to recover tax by collection under this section shall be without prejudice to any other mode of recovery.
(3) Any person collecting any amount under this section shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs:
Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.
(3A) In case of an office of the Government, where the amount collected under sub-section (1) or sub-section (1C) has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is responsible for crediting such tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.
(3B) The person referred to in the proviso to sub-section (3) may also deliver to the prescribed authority under the said proviso, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under the said proviso in such form and verified in such manner, as may be specified by the authority:
Provided that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in the proviso to sub-section (3) is required to be delivered.
(4) Any amount collected in accordance with the provisions of this section and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person or any other person eligible for credit for the amount so collected in a particular assessment year in accordance with the rules as may be prescribed by the Board from time to time.
(5) Every person collecting tax in accordance with the provisions of this section shall within such period as may be prescribed from the time of debit or receipt of the amount furnish to the buyer or licensee or lessee to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed:
Provided that the prescribed income-tax authority or the person authorised by such authority referred to in sub-section (3) shall, within the prescribed time after the end of each financial year beginning on or after the 1st day of April, 2008, prepare and deliver to the buyer referred to in sub-section (1) or, as the case may be, to the licensee or lessee referred to in sub-section (1C), a statement in the prescribed form specifying the amount of tax collected and such other particulars as may be prescribed.
(5A) Every person collecting tax before the 1st day of April, 2005 in accordance with the provisions of this section shall prepare within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority or such other authority or agency as may be prescribed such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:
Provided that the Board may, if it considers necessary or expedient so to do, frame a scheme for the purposes of filing such returns with such other authority or agency referred to in this sub-section.
(5B) Without prejudice to the provisions of sub-section (5A), any person collecting tax, other than in a case where the seller is a company, the Central Government or a State Government, may at his option, deliver or cause to be delivered such return to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media (hereinafter referred to as the computer media) and in the manner as may be specified in that scheme:
Provided that where the person collecting tax is a company or the Central Government or a State Government, such person shall, in accordance with the provisions of this section, deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme.
(5C) Notwithstanding anything contained in any other law for the time being in force, a return filed on computer media shall be deemed to be a return for the purposes of sub-section (5A) and the rules made thereunder and shall be admissible in any proceedings made thereunder, without further proof of production of the original, as evidence of any contents of the original or of any facts stated therein.
(5D) Where the Assessing Officer considers that the return delivered or caused to be delivered under sub-section (5B) is defective, he may intimate the defect to the person collecting tax and give him an opportunity of rectifying the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, such return shall be treated as an invalid return and the provisions of this Act shall apply as if such person had failed to deliver the return.
(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).
(6A) If any person responsible for collecting tax in accordance with the provisions of this section does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax:
Provided that any person responsible for collecting tax in accordance with the provisions of sub-section (1) and sub-section (1C), who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee shall not be deemed to be an assessee in default in respect of such tax if such buyer or licensee or lessee— (i) has furnished his return of income under section 139; (ii) has taken into account such amount for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons failed to collect and pay the tax.
(7) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest— (a) at the rate of one per cent for every month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which such tax is collected; and (b) at the rate of one and one-half per cent for every month or part thereof on the amount of such tax from the date on which such tax was collected to the date on which such tax is actually paid, and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3):
Provided that in case any person responsible for collecting tax in accordance with the provisions of this section, fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee but is not deemed to be an assessee in default under the first proviso of sub-section (6A), the interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee:
Provided further that where an order is made by the Assessing Officer for the default under sub-section (6A), the interest shall be paid by the person in accordance with such order.
(7A) No order shall be made under sub-section (6A) deeming a person to be an assessee in default for failure to collect the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which tax was collectible or two years from the end of the financial year in which the correction statement is delivered under sub-section (3B), whichever is later:
Provided that the provisions of sub-sections (3), (5) and (6) of section 153 and Explanation 1 thereof shall, so far as may be, apply to the time limit specified in this sub-section.
(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the person responsible for collecting tax.
(9) Where the Assessing Officer is satisfied that the total income of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) or sub-section (1C), the Assessing Officer shall, on an application made by the buyer or licensee or lessee in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) or sub-section (1C).
(10) Where a certificate under sub-section (9) is given, the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessing Officer, collect the tax at the rates specified in such certificate.
(10A) In case the provisions of sub-section (1) [except the goods referred at serial number (i) in the TABLE], (1C) or (1F) require collection of tax at source during the period commencing from the 14th day of May, 2020 to the 31st day of March, 2021, then, notwithstanding anything contained in these sub-sections the collection of tax shall be made at the rate being the three-fourth of the rate specified in these sub-sections.
(11) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (9) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
(12) Notwithstanding anything contained in this section, no collection of tax shall be made or collection of tax shall be made at such lower rate in respect of specified transaction, from such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as the Central Government may, by notification in the Official Gazette specify in this behalf.
Explanation.—For the purposes of this section,— (a) "accountant" shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288; (aa) "buyer" with respect to— (i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,— (A) a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or (B) a buyer in the retail sale of such goods purchased by him for personal consumption; (ii) ***; (iii) sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section, but does not include,— (A) the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or (B) a local authority as defined in Explanation to clause (20) of section 10; or (C) a public sector company which is engaged in the business of carrying passengers; (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; (c) "seller" with respect to sub-section (1) and sub-section (1F) means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold.
C. AUTHORITIES
Section 206C, though structurally a machinery provision, is the most heavily litigated TCS section. The authorities are clustered around the questions that actually decide disputes: (1) is section 206C a charge or merely collection machinery; (2) who is a 'buyer'/'seller'; (3) is the article 'forest produce'/'timber' or 'scrap'; (4) the reach of sub-section (1C) to mining/parking/toll rights; (5) the Form 27C self-use declaration; and (6) default, the buyer-paid shield, interest and penalty. All citations have been web-verified; pinpoint flags are noted where a parallel reporter citation could not be independently confirmed.
Cluster 1 — Charge versus machinery; constitutional validity
Union of India v. A. Sanyasi Rao (1996) 219 ITR 330 (SC)
Issue: Constitutional validity and legislative competence of sections 44AC and 206C — the TCS scheme on liquor, forest produce, timber and scrap.
Held: Sections 44AC and 206C are valid. Section 206C is a machinery/collection provision — a mode of collecting tax akin to advance tax — and does not displace the regular computation of income under sections 28 to 43C; section 44AC was read down as merely adjunct to the collection mechanism, the regular assessment surviving in full.
Significance: The foundational authority that section 206C collects tax but does not charge it; the buyer's true liability is determined at assessment, which underpins the lower-rate certificate and the buyer-paid shield.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC)
Issue: Whether a withholding obligation arises independently of chargeability (decided on section 195, applied by analogy to all of Chapter XVII).
Held: The deduction/collection machinery of Chapter XVII presupposes a sum that is chargeable to tax; the obligation is not itself a charge and does not arise where there is no underlying taxable income.
Significance: Read with A. Sanyasi Rao, it confirms that section 206C is machinery, not charge — collection cannot exceed or precede the substantive liability the Act imposes.
Tirunelveli District Central Co-operative Bank Ltd. v. Jt. CIT (TDS) (2020) 428 ITR 249 (Mad)
Issue: Whether a Chapter XVII collection/deduction obligation (there, section 194N) is a charge, where the sum withdrawn/received is not income in the recipient's hands.
Held: The deduction/collection apparatus is not an independent charge; it presupposes income. Where the sum is not income of the recipient, the machinery does not bite.
Significance: Cognate support for the 'machinery, not charge' thesis as applied across Chapter XVII, including Part BB.
Cluster 2 — Who is a 'buyer' / 'seller' (auction, tender, fixed price, retail)
Excise Commissioner, Karnataka v. Mysore Sales International Ltd. (2024) — 2024 INSC 484 (SC)
Issue: Whether a liquor vendor who purchases from a State manufacturer/distributor at a State-fixed price (not by auction or tender) and resells at a fixed retail price is a 'buyer' within section 206C, so that TCS must be collected from him.
Held: No. The Explanation to section 206C defines 'buyer' as one who 'obtains in any sale, by way of auction, tender or any other mode' the specified goods; a vendor who obtains liquor at a State-fixed price under a permit is not a 'buyer', and the trade is outside TCS. Conversely, vendors who secured vending rights by auction were treated as falling within the buyer definition.
Significance: The leading modern Supreme Court statement on the 'buyer' gateway — the mode of acquisition (competitive auction/tender versus administered fixed price) is decisive. (Reporter pinpoint: neutral citation 2024 INSC 484 verified; parallel ITR/Taxman pinpoint to be confirmed before formal citation.)
Union of India v. A. Sanyasi Rao (1996) 219 ITR 330 (SC)
Note: Also relevant here: the Court recognised that section 206C operates on defined classes of 'buyers' and 'sellers' and cannot be stretched beyond the scheme; the regular assessment determines the buyer's true liability irrespective of the sum collected.
Cluster 3 — 'Forest produce' / 'timber' and the manufacture line
Issue: Whether sawn timber — logs sized and sawn in authorised sawmills after import — is 'forest produce' on which section 206C(1) TCS must be collected, and whether the assessee is an assessee in default for non-collection.
Held: No. Conversion of logs into sawn timber amounts to manufacture/production of a new and distinct commercial article; once the product ceases to be 'forest produce', section 206C(1) does not apply. The assessee was not an assessee in default; the Department's appeal was dismissed.
Significance: Fixes the outer limit of 'forest produce' for TCS — manufacture into a new commercial article takes the product out of section 206C(1). (ITR pinpoint 454 ITR 777 corroborated; taxmann cite verified.)
Andaman & Nicobar Islands Forest and Plantation Development Corporation Ltd. v. CIT (2006) 280 ITR 118 (Cal)
Issue: Whether de-barking, seasoning and converting tree trunks into logs amounts to manufacture/production of a new article (arising under sections 32AB/80HH/80J).
Held: Yes — the processing produced a new commercial article/thing.
Significance: Supporting authority on the 'manufacture/new product' reasoning relied on in Nirmal Kumar Kejriwal; cited as cognate support, not as a direct section 206C holding (it is a deductions case).
Cluster 4 — Meaning of 'scrap' (Explanation (b))
The scrap cases turn on two questions: (i) must the material be manufacturing/mechanical-working waste 'not usable as such'; and (ii) must the seller himself be the manufacturer. The Special Bench reconciled them — the material must objectively be such waste, but the seller need not have generated it.
Bharti Auto Products v. CIT (2013) 145 ITD 1 (Rajkot)(SB) / 37 taxmann.com 37
Issue: (a) Whether 'scrap' under Explanation (b) is confined to scrap generated by the seller's own manufacturing; (b) whether the first proviso to section 206C(6A) (no default where the buyer has paid) is retrospective.
Held: (a) A seller of scrap need be neither a manufacturer himself nor restricted to scrap from his own manufacture; the scrap may arise from manufacturing/mechanical working undertaken by anyone — a trader/importer of qualifying waste-and-scrap is therefore liable to collect TCS, provided the item is in fact 'waste and scrap ... not usable as such'. (b) The first proviso to section 206C(6A) is a remedial and curative measure, beneficial in nature, and applies retrospectively (applying the section 43B / Allied Motors 224 ITR 677 (SC) analogy).
Significance: The leading Special-Bench authority on the scope of 'scrap' and on the retrospective, curative character of the buyer-paid shield in section 206C(6A). (Note: the Special Bench did not decide belated Form 27C.)
CIT (TDS) v. Priya Blue Industries (P) Ltd. (2016) 381 ITR 210 (Guj) / (2016) 237 Taxman 1 (Guj)
Issue: Whether the products of ship-breaking are 'scrap' for section 206C.
Held: Only items arising from the breaking process that are 'not usable as such' are 'scrap'; items that emerge usable as such (re-rollable plates, serviceable articles) are not 'scrap' and attract no TCS. (The High Court declined to apply the Rajkot Special Bench on the facts.)
Significance: Confirms that the 'definitely not usable as such' requirement is the operative test; usable second-hand output is outside 'scrap'. (Distinct from the unrelated reassessment case of the same name at 437 ITR 155.)
Navine Fluorine International Ltd. v. ACIT (2011) 45 SOT 86 (Ahd)
Issue: Whether material that did not arise from manufacture or mechanical working is 'scrap'.
Held: No. 'Waste' and 'scrap' must arise from, and have a direct nexus with, manufacture or mechanical working of materials; absent that nexus the item is outside Explanation (b).
Significance: Establishes the manufacturing-nexus requirement built into the definition of 'scrap'.
Nathulal P. Lavti v. ITO (2011) 48 SOT 83 (URO) (Rajkot)
Held: To the same effect as Navine Fluorine — scrap must arise from manufacture/mechanical working of materials to fall within Explanation (b).
Significance: Reinforces the manufacturing-nexus test at Tribunal level.
Dhasawala Traders v. ITO (2016) 161 ITD 142 (Ahd)
Issue: Whether a pure trader, who generated no scrap in any manufacturing activity and sold re-usable products, must collect TCS as a seller of 'scrap'.
Held: No. Where the assessee carried on no manufacturing activity and the goods sold were usable, the items were not 'scrap' and there was no obligation to collect TCS.
Significance: Illustrates the 'not usable as such' limb operating to exclude usable trading goods. (Correct cause-title: Dhasawala Traders v. ITO — a Tribunal decision.)
Lala Bharat Lal & Sons v. ITO (2020) 78 ITR (Trib) 451 (Lucknow)
Held: A trader in metal scrap with no manufacturing nexus is not obliged to collect TCS; the Tribunal followed Priya Blue (Guj HC) and distinguished the Rajkot Special Bench on the facts.
Significance: Shows the post-Priya Blue Tribunal consensus on the manufacturing-nexus / 'not usable as such' requirement.
Cluster 5 — Form 27C self-use declaration (sub-sections (1A)–(1B))
The statutory text prescribes no time limit for Form 27C; the seven-day limit appears only in Rule 37C. The courts have treated belated filing as a procedural lapse that does not, by itself, defeat the exemption where genuineness is not in doubt.
Issue: Whether a Form 27C self-use declaration furnished belatedly — in the course of rectification/appellate proceedings rather than at the time of sale — is valid.
Held: Yes. The failure to obtain the declaration at the moment of sale is a technical breach liable to be condoned; a Form 27C filed later is sufficient compliance with sub-section (1A).
Significance: The cleanest fully-reported High Court authority that belated Form 27C is acceptable where the declaration is genuine.
CIT v. Siyaram Metal Udyog (P) Ltd. (Guj HC, ITA Nos. 519 & 526 of 2016)
Issue: Whether minor delay in furnishing Form 27C renders the section 206C(1A) exemption unavailable and attracts interest under section 206C(7).
Held: No. Section 206C(1A) prescribes no time limit (the seven-day period is only in Rule 37C(3)); belated submission is a mere procedural lapse and, where the format and genuineness are undisputed, does not defeat the claim; the consequential interest under section 206C(7) was deleted.
Significance: Directly supports belated Form 27C; reported by ITA numbers. (Flag: an SLP is reported to be pending against the Gujarat High Court on this point — treat as good law at High Court level pending the Supreme Court's view.)
Bharti Auto Products v. CIT (2013) 145 ITD 1 (Rajkot)(SB)
Note: The Special Bench described the section 206C(1A)/Form 27C scheme and the curative character of the section 206C(6A) proviso; it did not itself rule on belated Form 27C, but its reasoning on beneficial/curative construction is frequently invoked in the 27C cases.
Cluster 6 — Sub-section (1C): mining/quarrying, parking, toll rights
Collector (Mining) / District Mining Officer v. DCIT (TDS) — Chhattisgarh HC (2025) 345 CTR 600 / (2025) 306 Taxman 362 (Chh)
Issue: Whether a compounding fee recovered from illegal miners/transporters is a receipt on which TCS must be collected under section 206C(1C).
Held: No. Section 206C(1C) applies only where a lawful lease, licence or contract transfers a right or interest in a mine or quarry generating royalty or lease-rent. Illegal miners hold no lease or licence, so there is no taxable transfer; a compounding fee or fine is not 'royalty' and is conceptually distinct from it. No TCS arises.
Significance: Confines sub-section (1C) to the lawful grant of a right/interest yielding royalty or lease-rent; fines and compounding fees are outside it.
DCIT (TDS) v. District Mining Officer — SLP dismissed, (2026) 183 taxmann.com 119 (SC)
Held: The Supreme Court dismissed the Department's special leave petition, leaving the Chhattisgarh High Court's view undisturbed — no TCS under section 206C(1C) on compounding fees from illegal mining.
Significance: Sets the seal of finality on the lawful-grant requirement under sub-section (1C).
Sub-section (6A) deems the non-collecting seller an assessee in default, but the first proviso (the buyer-paid shield, held curative/retrospective in Bharti Auto) and Form 27BA neutralise the default where the buyer has discharged the tax. Penalty under section 271CA is subject to the 'reasonable cause' relief in section 273B.
Principle: Where the recipient has paid the tax on his income, the person who failed to withhold cannot be made to pay the same tax over again; interest for the period of default nonetheless survives.
Use: Although a TDS (section 201) decision, it is the conceptual parent of the first proviso to section 206C(6A): the seller is not in default once the buyer has filed his return, included the amount and paid the tax (with Form 27BA), interest running only to the date of the buyer's return.
Ajit Lalwani v. ACIT (TDS) — ITAT Indore, ITA Nos. 194 & 195/Ind/2020
Issue: Whether penalty under section 271CA survives where the scrap-dealer seller furnishes Form 27BA establishing that buyers had filed returns, included the amounts and paid tax, and had also deposited TCS and interest.
Held: No. On the proviso to section 206C(6A) being satisfied (Form 27BA furnished), the seller is not an assessee in default and the penalty under section 271CA was deleted.
Significance: A concrete application of the buyer-paid shield to defeat both the default and the section 271CA penalty.
Principle: Section 271CA penalty for failure to collect TCS is not automatic; section 273B excludes it where the collector shows 'reasonable cause' — a bona fide belief, a technical or venial breach, or a revenue-neutral default. Tribunals have deleted section 271CA penalties on these grounds (for example, non-collection on a parking-lot licence by a small local authority that promptly cured the default), reflecting the settled 'reasonable cause' jurisprudence under section 273B.
Use: Anchors the defence to section 271CA proceedings; to be read with the dedicated commentary on sections 271CA and 273B.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow, spent or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · BB.—COLLECTION AT SOURCE (TCS)
Section 206C — Tax Collection at Source (Alcoholic Liquor, Forest Produce, Scrap, Motor Vehicles, LRS, etc.)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. The charging-cum-machinery hub of Part BB and by far the most heavily litigated TCS provision. Carries amendments up to the Finance Act 2025 (inter alia, revised rates and the sunset of sub-section (1H) from 1-4-2025).
Finance Act, 2026: No amendment. The Finance Act 2026 makes no change to section 206C. (The substituted offence provision in section 276BB, effective 1 March 2026, refers to — but does not amend — section 206C.)
Mechanism: The seller (or grantor of a right) collects a percentage of the sale consideration from the buyer at the time of debit or receipt, whichever is earlier, and pays it to the credit of the Central Government; the sum collected is deemed payment of the buyer's tax (sub-section (4)).
Litigation profile: Treatise-grade. The decisive questions are: charge versus machinery; the 'buyer'/'seller' gateway (auction/tender versus fixed price; retail/personal-consumption exclusion); whether goods are 'forest produce'/'timber' or 'scrap'; the reach of sub-section (1C) to mining/parking/toll rights; the Form 27C declaration; and default, the buyer-paid shield, interest and section 271CA penalty.
A. SECTION COMMENTARY
Section 206C is the charging-cum-machinery hub of Part BB. Where Part B (sections 192–206B) casts the burden of withholding upon the payer of income, Part BB inverts the architecture: it fastens the collection obligation upon the seller (or the grantor of a right), who must collect a percentage of the sale consideration from the buyer at the moment of debit or receipt, whichever is earlier, and pay it over to the Central Government. The provision began life in 1988 as a counter-evasion device aimed at notoriously under-assessed trades — country liquor, forest produce, timber and scrap — where the buyer was frequently outside the tax net; it has since been progressively widened, by successive Finance Acts, into a broad-spectrum information-and-collection net covering motor vehicles (1F), foreign remittances and overseas tour packages under the Liberalised Remittance Scheme (1G), and, for a brief window, the residuary sale of goods above fifty lakh rupees (1H, now sunset from 1 April 2025).
Charge versus machinery — the conceptual foundation
The single most important characterisation, settled by the Supreme Court, is that section 206C is not itself a charging provision. It is a machinery for the collection of tax akin to advance tax; the charge remains in sections 4 and 5, and the sum collected is, by sub-section (4), "deemed to be a payment of tax on behalf of the person from whom the amount has been collected". Two consequences follow. First, the collection apparatus presupposes — it does not create — an underlying liability; the buyer remains free to establish at assessment that his true liability is lower (hence the lower-rate certificate under sub-sections (9)–(10) and the section 206C(12) exemption-by-notification power). Second, because the section is machinery, its language is construed to give effect to the collection scheme without enlarging the substantive charge.
Who is a 'seller' and who is a 'buyer'
The twin definitions in the Explanation are the gateway to liability. 'Seller' (for sub-sections (1) and (1F)) is confined to Government, local authorities, statutory corporations, companies, firms and co-operative societies, plus individuals/HUFs above a turnover threshold — an ordinary small trader is therefore outside the net. 'Buyer' for sub-section (1) is critically defined as one who 'obtains in any sale, by way of auction, tender or any other mode', the goods specified — and expressly excludes a buyer in retail sale for personal consumption and a public sector company. The Supreme Court has read the auction/tender language purposively: a vendor who acquires goods at a State-fixed price under a permit, rather than by competitive bid, is not a 'buyer', whereas one who secures vending rights by auction is. The buyer/seller definitions, not the rate table, decide most TCS disputes.
'Forest produce', 'timber' and the manufacture line
Sub-section (1) bites on timber and 'any other forest produce (not being tendu leaves) obtained under a forest lease', and the Explanation imports the State forest law / Indian Forest Act, 1927 meaning of 'forest produce'. A recurring battleground is the point at which forest produce ceases to be forest produce: once logs are sawn, sized and converted in an authorised sawmill into a distinct commercial article, the High Courts have held the product is no longer 'forest produce' and falls outside section 206C(1). The same manufacture/new-product reasoning recurs in the scrap cases.
The 'scrap' controversy
Explanation (b) 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'. Two questions dominate. (i) Must the scrap have arisen from a manufacturing/mechanical-working process? The Tribunal has consistently held that the words 'from the manufacture or mechanical working of materials' are integral — items that are simply re-usable second-hand goods, or that never passed through any manufacturing process, are not 'scrap'. (ii) Must the seller himself be the manufacturer? The Rajkot Special Bench answered no — a trader or importer who sells qualifying waste-and-scrap is within section 206C, the scrap need not be generated by the seller's own plant. The two propositions are reconciled thus: the material must objectively be manufacturing waste 'not usable as such', but the seller need not be the one who manufactured it.
Sub-section (1C) — rights in parking lots, toll plazas, mines and quarries
Sub-section (1C) extends TCS to the grant of a lease, licence or contract transferring a right or interest in a parking lot, toll plaza, mine or quarry (a public sector company being excluded). The recent Chhattisgarh High Court line, affirmed by the Supreme Court on dismissal of the Department's SLP, confines (1C) to a lawful transfer of a right or interest generating royalty or lease-rent; a compounding fee or fine extracted from an illegal miner — who holds no lease or licence — is not 'royalty' and triggers no collection obligation. The provision attaches to the lawful grant of the right, not to every receipt connected with a mineral.
Sub-sections (1F)–(1H) — the modern expansion
Sub-section (1F) (motor vehicles above ten lakh rupees) and sub-section (1G) (LRS remittances and overseas tour packages) convert section 206C into an information tool over high-value consumption and outbound foreign exchange; the (1G) rate structure, repeatedly recalibrated between 2020 and 2025, now turns on remittance purpose (education/medical versus other) and on threshold (ten lakh rupees). Sub-section (1H) — the residuary 0.1% collection on sale of goods above fifty lakh rupees — overlapped from inception with the buyer-side TDS in section 194Q; CBDT Circular 13/2021 resolved the clash by giving 194Q primacy, and the Finance Act 2025 has since omitted (1H) with effect from 1 April 2025, leaving 194Q to occupy the field. These provisions are, as yet, judicially almost untested.
Default, the buyer-paid shield, interest and limitation
A seller who fails to collect remains liable to pay the tax (sub-section (6)) and is deemed an assessee in default (sub-section (6A)) — but the first proviso to (6A) imports the Hindustan Coca-Cola logic into TCS: where the buyer or lessee has filed his return, included the amount, and paid the tax due, and an accountant's certificate (Form 27BA) is furnished, the seller is not in default. Interest under sub-section (7) is bifurcated (1% per month to the date of collection; 1.5% thereafter to payment) and, where the buyer-paid shield applies, runs only to the date the buyer furnished his return. A six-year limitation now caps section (6A) orders (sub-section (7A)). The lower-rate certificate (sub-sections (9)–(10)), the Form 27C self-use declaration (sub-sections (1A)–(1B)), and the penalty under section 271CA (read with the 'reasonable cause' relief in section 273B) complete the machinery.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Amendment foot-note markers have been resolved into the current operative text; the editorial marker “***” denotes text omitted by the Legislature.
Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
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 — Sl. No. (1) / Nature of goods (2) / Percentage (3): (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) ***; (vi) Scrap — One per cent; (vii) Minerals, being coal or lignite or iron ore — One per cent:
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.
Explanation.—For the purposes of this sub-section, "forest produce" shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927 (16 of 1927).
(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 or for the purposes of generation of power and not for trading purposes.
(1B) The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner one copy of the declaration referred to in sub-section (1A) on or before the seventh day of the month next following the month in which the declaration is furnished to him.
(1C) Every person, who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest either in whole or in part in any parking lot or toll plaza or mine or quarry, to another person, other than a public sector company (hereafter in this section referred to as "licensee or lessee") for the use of such parking lot or toll plaza or mine or quarry for the purpose of business shall, at the time of debiting of the amount payable by the licensee or lessee to the account of the licensee or lessee or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the licensee or lessee of any such licence, contract or lease 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 — Sl. No. (1) / Nature of contract or licence or lease, etc. (2) / Percentage (3): (i) Parking lot — Two per cent; (ii) Toll plaza — Two per cent; (iii) Mining and quarrying — Two per cent.
Explanation 1.—For the purposes of this sub-section, "mining and quarrying" shall not include mining and quarrying of mineral oil. Explanation 2.—For the purposes of Explanation 1, "mineral oil" includes petroleum and natural gas.
(1D) *** (1E) ***
(1F) Every person, being a seller, who receives any amount as consideration for sale of— (i) a motor vehicle; or (ii) any other goods, as may be specified by the Central Government by notification in the Official Gazette, of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent of the sale consideration as income-tax.
(1G) Every person,— (a) being an authorised dealer, who receives an amount, for remittance from a buyer, being a person remitting such amount under the Liberalised Remittance Scheme of the Reserve Bank of India; (b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package, shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:
Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than ten lakh rupees in a financial year:
Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to twenty per cent of the amount or aggregate of the amounts in excess of ten lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for purposes other than education or medical treatment:
Provided also that the authorised dealer shall not collect the sum if the amount being remitted out is a loan obtained from any financial institution as defined in clause (b) of sub-section (3) of section 80E, for the purpose of pursuing any education:
Provided also that the seller of an overseas tour programme package shall collect a sum of twenty per cent of the amount or aggregate of amounts in excess of ten lakh rupees received from the buyer in a financial year:
Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:
Provided also that the provisions of this sub-section shall not apply, if the buyer is,— (i) liable to deduct tax at source under any other provision of this Act and has deducted such amount; (ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein:
Provided also that the sum to be collected under this sub-section on or after the 1st day of July, 2023 and before the 1st day of October, 2023, shall be collected in accordance with the provisions of this sub-section as they stood on the 1st day of April, 2023.
Explanation.—For the purposes of this sub-section,— (i) "authorised dealer" means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security; (ii) "overseas tour programme package" means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words "five per cent", the words "one per cent" had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount:
Provided also that nothing contained in the provisions of this sub-section shall apply from the 1st day of April, 2025.
Explanation.—For the purposes of this sub-section,— (a) "buyer" means a person who purchases any goods, but does not include,— (A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or (B) a local authority as defined in the Explanation to clause (20) of section 10; or (C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein; (b) "seller" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
(1-I) If any difficulty arises in giving effect to the provisions of sub-section (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person liable to collect the sum.
(2) The power to recover tax by collection under this section shall be without prejudice to any other mode of recovery.
(3) Any person collecting any amount under this section shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs:
Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.
(3A) In case of an office of the Government, where the amount collected under sub-section (1) or sub-section (1C) has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is responsible for crediting such tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.
(3B) The person referred to in the proviso to sub-section (3) may also deliver to the prescribed authority under the said proviso, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under the said proviso in such form and verified in such manner, as may be specified by the authority:
Provided that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in the proviso to sub-section (3) is required to be delivered.
(4) Any amount collected in accordance with the provisions of this section and paid to the credit of the Central Government shall be deemed to be a payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to such person or any other person eligible for credit for the amount so collected in a particular assessment year in accordance with the rules as may be prescribed by the Board from time to time.
(5) Every person collecting tax in accordance with the provisions of this section shall within such period as may be prescribed from the time of debit or receipt of the amount furnish to the buyer or licensee or lessee to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed:
Provided that the prescribed income-tax authority or the person authorised by such authority referred to in sub-section (3) shall, within the prescribed time after the end of each financial year beginning on or after the 1st day of April, 2008, prepare and deliver to the buyer referred to in sub-section (1) or, as the case may be, to the licensee or lessee referred to in sub-section (1C), a statement in the prescribed form specifying the amount of tax collected and such other particulars as may be prescribed.
(5A) Every person collecting tax before the 1st day of April, 2005 in accordance with the provisions of this section shall prepare within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority or such other authority or agency as may be prescribed such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:
Provided that the Board may, if it considers necessary or expedient so to do, frame a scheme for the purposes of filing such returns with such other authority or agency referred to in this sub-section.
(5B) Without prejudice to the provisions of sub-section (5A), any person collecting tax, other than in a case where the seller is a company, the Central Government or a State Government, may at his option, deliver or cause to be delivered such return to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other computer readable media (hereinafter referred to as the computer media) and in the manner as may be specified in that scheme:
Provided that where the person collecting tax is a company or the Central Government or a State Government, such person shall, in accordance with the provisions of this section, deliver or cause to be delivered, within the prescribed time after the end of each financial year, such returns on computer media under the said scheme.
(5C) Notwithstanding anything contained in any other law for the time being in force, a return filed on computer media shall be deemed to be a return for the purposes of sub-section (5A) and the rules made thereunder and shall be admissible in any proceedings made thereunder, without further proof of production of the original, as evidence of any contents of the original or of any facts stated therein.
(5D) Where the Assessing Officer considers that the return delivered or caused to be delivered under sub-section (5B) is defective, he may intimate the defect to the person collecting tax and give him an opportunity of rectifying the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, such return shall be treated as an invalid return and the provisions of this Act shall apply as if such person had failed to deliver the return.
(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).
(6A) If any person responsible for collecting tax in accordance with the provisions of this section does not collect the whole or any part of the tax or after collecting, fails to pay the tax as required by or under this Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax:
Provided that any person responsible for collecting tax in accordance with the provisions of sub-section (1) and sub-section (1C), who fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee shall not be deemed to be an assessee in default in respect of such tax if such buyer or licensee or lessee— (i) has furnished his return of income under section 139; (ii) has taken into account such amount for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
Provided further that no penalty shall be charged under section 221 from such person unless the Assessing Officer is satisfied that the person has without good and sufficient reasons failed to collect and pay the tax.
(7) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest— (a) at the rate of one per cent for every month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which such tax is collected; and (b) at the rate of one and one-half per cent for every month or part thereof on the amount of such tax from the date on which such tax was collected to the date on which such tax is actually paid, and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3):
Provided that in case any person responsible for collecting tax in accordance with the provisions of this section, fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee but is not deemed to be an assessee in default under the first proviso of sub-section (6A), the interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee:
Provided further that where an order is made by the Assessing Officer for the default under sub-section (6A), the interest shall be paid by the person in accordance with such order.
(7A) No order shall be made under sub-section (6A) deeming a person to be an assessee in default for failure to collect the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which tax was collectible or two years from the end of the financial year in which the correction statement is delivered under sub-section (3B), whichever is later:
Provided that the provisions of sub-sections (3), (5) and (6) of section 153 and Explanation 1 thereof shall, so far as may be, apply to the time limit specified in this sub-section.
(8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the person responsible for collecting tax.
(9) Where the Assessing Officer is satisfied that the total income of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) or sub-section (1C), the Assessing Officer shall, on an application made by the buyer or licensee or lessee in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) or sub-section (1C).
(10) Where a certificate under sub-section (9) is given, the person responsible for collecting the tax shall, until such certificate is cancelled by the Assessing Officer, collect the tax at the rates specified in such certificate.
(10A) In case the provisions of sub-section (1) [except the goods referred at serial number (i) in the TABLE], (1C) or (1F) require collection of tax at source during the period commencing from the 14th day of May, 2020 to the 31st day of March, 2021, then, notwithstanding anything contained in these sub-sections the collection of tax shall be made at the rate being the three-fourth of the rate specified in these sub-sections.
(11) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (9) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
(12) Notwithstanding anything contained in this section, no collection of tax shall be made or collection of tax shall be made at such lower rate in respect of specified transaction, from such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as the Central Government may, by notification in the Official Gazette specify in this behalf.
Explanation.—For the purposes of this section,— (a) "accountant" shall have the meaning assigned to it in the Explanation to sub-section (2) of section 288; (aa) "buyer" with respect to— (i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub-section (1) or the right to receive any such goods but does not include,— (A) a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or (B) a buyer in the retail sale of such goods purchased by him for personal consumption; (ii) ***; (iii) sub-section (1F) means a person who obtains in any sale, goods of the nature specified in the said sub-section, but does not include,— (A) the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or (B) a local authority as defined in Explanation to clause (20) of section 10; or (C) a public sector company which is engaged in the business of carrying passengers; (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; (c) "seller" with respect to sub-section (1) and sub-section (1F) means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) are sold.
C. AUTHORITIES
Section 206C, though structurally a machinery provision, is the most heavily litigated TCS section. The authorities are clustered around the questions that actually decide disputes: (1) is section 206C a charge or merely collection machinery; (2) who is a 'buyer'/'seller'; (3) is the article 'forest produce'/'timber' or 'scrap'; (4) the reach of sub-section (1C) to mining/parking/toll rights; (5) the Form 27C self-use declaration; and (6) default, the buyer-paid shield, interest and penalty. All citations have been web-verified; pinpoint flags are noted where a parallel reporter citation could not be independently confirmed.
Cluster 1 — Charge versus machinery; constitutional validity
Union of India v. A. Sanyasi Rao (1996) 219 ITR 330 (SC)
Issue: Constitutional validity and legislative competence of sections 44AC and 206C — the TCS scheme on liquor, forest produce, timber and scrap.
Held: Sections 44AC and 206C are valid. Section 206C is a machinery/collection provision — a mode of collecting tax akin to advance tax — and does not displace the regular computation of income under sections 28 to 43C; section 44AC was read down as merely adjunct to the collection mechanism, the regular assessment surviving in full.
Significance: The foundational authority that section 206C collects tax but does not charge it; the buyer's true liability is determined at assessment, which underpins the lower-rate certificate and the buyer-paid shield.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC)
Issue: Whether a withholding obligation arises independently of chargeability (decided on section 195, applied by analogy to all of Chapter XVII).
Held: The deduction/collection machinery of Chapter XVII presupposes a sum that is chargeable to tax; the obligation is not itself a charge and does not arise where there is no underlying taxable income.
Significance: Read with A. Sanyasi Rao, it confirms that section 206C is machinery, not charge — collection cannot exceed or precede the substantive liability the Act imposes.
Tirunelveli District Central Co-operative Bank Ltd. v. Jt. CIT (TDS) (2020) 428 ITR 249 (Mad)
Issue: Whether a Chapter XVII collection/deduction obligation (there, section 194N) is a charge, where the sum withdrawn/received is not income in the recipient's hands.
Held: The deduction/collection apparatus is not an independent charge; it presupposes income. Where the sum is not income of the recipient, the machinery does not bite.
Significance: Cognate support for the 'machinery, not charge' thesis as applied across Chapter XVII, including Part BB.
Cluster 2 — Who is a 'buyer' / 'seller' (auction, tender, fixed price, retail)
Excise Commissioner, Karnataka v. Mysore Sales International Ltd. (2024) — 2024 INSC 484 (SC)
Issue: Whether a liquor vendor who purchases from a State manufacturer/distributor at a State-fixed price (not by auction or tender) and resells at a fixed retail price is a 'buyer' within section 206C, so that TCS must be collected from him.
Held: No. The Explanation to section 206C defines 'buyer' as one who 'obtains in any sale, by way of auction, tender or any other mode' the specified goods; a vendor who obtains liquor at a State-fixed price under a permit is not a 'buyer', and the trade is outside TCS. Conversely, vendors who secured vending rights by auction were treated as falling within the buyer definition.
Significance: The leading modern Supreme Court statement on the 'buyer' gateway — the mode of acquisition (competitive auction/tender versus administered fixed price) is decisive. (Reporter pinpoint: neutral citation 2024 INSC 484 verified; parallel ITR/Taxman pinpoint to be confirmed before formal citation.)
Union of India v. A. Sanyasi Rao (1996) 219 ITR 330 (SC)
Note: Also relevant here: the Court recognised that section 206C operates on defined classes of 'buyers' and 'sellers' and cannot be stretched beyond the scheme; the regular assessment determines the buyer's true liability irrespective of the sum collected.
Cluster 3 — 'Forest produce' / 'timber' and the manufacture line
PCIT (TDS) v. Nirmal Kumar Kejriwal (2022) 142 taxmann.com 141 (Cal) / (2023) 454 ITR 777 (Cal)
Issue: Whether sawn timber — logs sized and sawn in authorised sawmills after import — is 'forest produce' on which section 206C(1) TCS must be collected, and whether the assessee is an assessee in default for non-collection.
Held: No. Conversion of logs into sawn timber amounts to manufacture/production of a new and distinct commercial article; once the product ceases to be 'forest produce', section 206C(1) does not apply. The assessee was not an assessee in default; the Department's appeal was dismissed.
Significance: Fixes the outer limit of 'forest produce' for TCS — manufacture into a new commercial article takes the product out of section 206C(1). (ITR pinpoint 454 ITR 777 corroborated; taxmann cite verified.)
Andaman & Nicobar Islands Forest and Plantation Development Corporation Ltd. v. CIT (2006) 280 ITR 118 (Cal)
Issue: Whether de-barking, seasoning and converting tree trunks into logs amounts to manufacture/production of a new article (arising under sections 32AB/80HH/80J).
Held: Yes — the processing produced a new commercial article/thing.
Significance: Supporting authority on the 'manufacture/new product' reasoning relied on in Nirmal Kumar Kejriwal; cited as cognate support, not as a direct section 206C holding (it is a deductions case).
Cluster 4 — Meaning of 'scrap' (Explanation (b))
The scrap cases turn on two questions: (i) must the material be manufacturing/mechanical-working waste 'not usable as such'; and (ii) must the seller himself be the manufacturer. The Special Bench reconciled them — the material must objectively be such waste, but the seller need not have generated it.
Bharti Auto Products v. CIT (2013) 145 ITD 1 (Rajkot)(SB) / 37 taxmann.com 37
Issue: (a) Whether 'scrap' under Explanation (b) is confined to scrap generated by the seller's own manufacturing; (b) whether the first proviso to section 206C(6A) (no default where the buyer has paid) is retrospective.
Held: (a) A seller of scrap need be neither a manufacturer himself nor restricted to scrap from his own manufacture; the scrap may arise from manufacturing/mechanical working undertaken by anyone — a trader/importer of qualifying waste-and-scrap is therefore liable to collect TCS, provided the item is in fact 'waste and scrap ... not usable as such'. (b) The first proviso to section 206C(6A) is a remedial and curative measure, beneficial in nature, and applies retrospectively (applying the section 43B / Allied Motors 224 ITR 677 (SC) analogy).
Significance: The leading Special-Bench authority on the scope of 'scrap' and on the retrospective, curative character of the buyer-paid shield in section 206C(6A). (Note: the Special Bench did not decide belated Form 27C.)
CIT (TDS) v. Priya Blue Industries (P) Ltd. (2016) 381 ITR 210 (Guj) / (2016) 237 Taxman 1 (Guj)
Issue: Whether the products of ship-breaking are 'scrap' for section 206C.
Held: Only items arising from the breaking process that are 'not usable as such' are 'scrap'; items that emerge usable as such (re-rollable plates, serviceable articles) are not 'scrap' and attract no TCS. (The High Court declined to apply the Rajkot Special Bench on the facts.)
Significance: Confirms that the 'definitely not usable as such' requirement is the operative test; usable second-hand output is outside 'scrap'. (Distinct from the unrelated reassessment case of the same name at 437 ITR 155.)
Navine Fluorine International Ltd. v. ACIT (2011) 45 SOT 86 (Ahd)
Issue: Whether material that did not arise from manufacture or mechanical working is 'scrap'.
Held: No. 'Waste' and 'scrap' must arise from, and have a direct nexus with, manufacture or mechanical working of materials; absent that nexus the item is outside Explanation (b).
Significance: Establishes the manufacturing-nexus requirement built into the definition of 'scrap'.
Nathulal P. Lavti v. ITO (2011) 48 SOT 83 (URO) (Rajkot)
Held: To the same effect as Navine Fluorine — scrap must arise from manufacture/mechanical working of materials to fall within Explanation (b).
Significance: Reinforces the manufacturing-nexus test at Tribunal level.
Dhasawala Traders v. ITO (2016) 161 ITD 142 (Ahd)
Issue: Whether a pure trader, who generated no scrap in any manufacturing activity and sold re-usable products, must collect TCS as a seller of 'scrap'.
Held: No. Where the assessee carried on no manufacturing activity and the goods sold were usable, the items were not 'scrap' and there was no obligation to collect TCS.
Significance: Illustrates the 'not usable as such' limb operating to exclude usable trading goods. (Correct cause-title: Dhasawala Traders v. ITO — a Tribunal decision.)
Lala Bharat Lal & Sons v. ITO (2020) 78 ITR (Trib) 451 (Lucknow)
Held: A trader in metal scrap with no manufacturing nexus is not obliged to collect TCS; the Tribunal followed Priya Blue (Guj HC) and distinguished the Rajkot Special Bench on the facts.
Significance: Shows the post-Priya Blue Tribunal consensus on the manufacturing-nexus / 'not usable as such' requirement.
Cluster 5 — Form 27C self-use declaration (sub-sections (1A)–(1B))
The statutory text prescribes no time limit for Form 27C; the seven-day limit appears only in Rule 37C. The courts have treated belated filing as a procedural lapse that does not, by itself, defeat the exemption where genuineness is not in doubt.
CIT v. Adisankara Spinning Mills (P) Ltd. (2014) 362 ITR 233 (Mad)
Issue: Whether a Form 27C self-use declaration furnished belatedly — in the course of rectification/appellate proceedings rather than at the time of sale — is valid.
Held: Yes. The failure to obtain the declaration at the moment of sale is a technical breach liable to be condoned; a Form 27C filed later is sufficient compliance with sub-section (1A).
Significance: The cleanest fully-reported High Court authority that belated Form 27C is acceptable where the declaration is genuine.
CIT v. Siyaram Metal Udyog (P) Ltd. (Guj HC, ITA Nos. 519 & 526 of 2016)
Issue: Whether minor delay in furnishing Form 27C renders the section 206C(1A) exemption unavailable and attracts interest under section 206C(7).
Held: No. Section 206C(1A) prescribes no time limit (the seven-day period is only in Rule 37C(3)); belated submission is a mere procedural lapse and, where the format and genuineness are undisputed, does not defeat the claim; the consequential interest under section 206C(7) was deleted.
Significance: Directly supports belated Form 27C; reported by ITA numbers. (Flag: an SLP is reported to be pending against the Gujarat High Court on this point — treat as good law at High Court level pending the Supreme Court's view.)
Bharti Auto Products v. CIT (2013) 145 ITD 1 (Rajkot)(SB)
Note: The Special Bench described the section 206C(1A)/Form 27C scheme and the curative character of the section 206C(6A) proviso; it did not itself rule on belated Form 27C, but its reasoning on beneficial/curative construction is frequently invoked in the 27C cases.
Cluster 6 — Sub-section (1C): mining/quarrying, parking, toll rights
Collector (Mining) / District Mining Officer v. DCIT (TDS) — Chhattisgarh HC (2025) 345 CTR 600 / (2025) 306 Taxman 362 (Chh)
Issue: Whether a compounding fee recovered from illegal miners/transporters is a receipt on which TCS must be collected under section 206C(1C).
Held: No. Section 206C(1C) applies only where a lawful lease, licence or contract transfers a right or interest in a mine or quarry generating royalty or lease-rent. Illegal miners hold no lease or licence, so there is no taxable transfer; a compounding fee or fine is not 'royalty' and is conceptually distinct from it. No TCS arises.
Significance: Confines sub-section (1C) to the lawful grant of a right/interest yielding royalty or lease-rent; fines and compounding fees are outside it.
DCIT (TDS) v. District Mining Officer — SLP dismissed, (2026) 183 taxmann.com 119 (SC)
Held: The Supreme Court dismissed the Department's special leave petition, leaving the Chhattisgarh High Court's view undisturbed — no TCS under section 206C(1C) on compounding fees from illegal mining.
Significance: Sets the seal of finality on the lawful-grant requirement under sub-section (1C).
Cluster 7 — Default, buyer-paid shield, interest and penalty (sub-sections (6)–(7); s.271CA/273B)
Sub-section (6A) deems the non-collecting seller an assessee in default, but the first proviso (the buyer-paid shield, held curative/retrospective in Bharti Auto) and Form 27BA neutralise the default where the buyer has discharged the tax. Penalty under section 271CA is subject to the 'reasonable cause' relief in section 273B.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC)
Principle: Where the recipient has paid the tax on his income, the person who failed to withhold cannot be made to pay the same tax over again; interest for the period of default nonetheless survives.
Use: Although a TDS (section 201) decision, it is the conceptual parent of the first proviso to section 206C(6A): the seller is not in default once the buyer has filed his return, included the amount and paid the tax (with Form 27BA), interest running only to the date of the buyer's return.
Ajit Lalwani v. ACIT (TDS) — ITAT Indore, ITA Nos. 194 & 195/Ind/2020
Issue: Whether penalty under section 271CA survives where the scrap-dealer seller furnishes Form 27BA establishing that buyers had filed returns, included the amounts and paid tax, and had also deposited TCS and interest.
Held: No. On the proviso to section 206C(6A) being satisfied (Form 27BA furnished), the seller is not an assessee in default and the penalty under section 271CA was deleted.
Significance: A concrete application of the buyer-paid shield to defeat both the default and the section 271CA penalty.
Penalty under section 271CA and 'reasonable cause' (section 273B)
Principle: Section 271CA penalty for failure to collect TCS is not automatic; section 273B excludes it where the collector shows 'reasonable cause' — a bona fide belief, a technical or venial breach, or a revenue-neutral default. Tribunals have deleted section 271CA penalties on these grounds (for example, non-collection on a parking-lot licence by a small local authority that promptly cured the default), reflecting the settled 'reasonable cause' jurisprudence under section 273B.
Use: Anchors the defence to section 271CA proceedings; to be read with the dedicated commentary on sections 271CA and 273B.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow, spent or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.