Income Tax Appellate Tribunal - Delhi
Income Tax Officer vs Millan Dairy Foods (P) Ltd. [Alongwith ... on 16 September, 2005
Equivalent citations: (2006)105TTJ(DELHI)252
ORDER
A.D. Jain, J.M.
1. An application has been filed in ITA Nos. 4944 to 4947/Del/2004, requesting for adjournment. It has been stated that since the other connected appeals in the case of M/s Millan Dairy Foods, adjournment had been sought, these appeals be also adjourned to be heard along with those cases. The matter of M/s Millan Dairy Foods i.e. ITA Nos. 4939 to 4941/Del/2004 have not been adjourned. Therefore, this application stands rejected. ITA Nos. 4939 to 4941/Del/2004
2. The Department has taken a common ground in these appeals, whereby it has been submitted that the learned CIT(A), while deleting the penalty levied as per the order of the AO, has erred in concluding that the transaction between the manufacturers of packaging material and the deductee company are the transactions of sale and purchase on a principal to principal basis and not transactions of contract covered under Section 194C of the IT Act.
3. For convenience, facts are being taken from ITA No. 4939/Del/2004, since the learned CIT(A) has also passed a composite order for all the three cases. The assessee is a private limited company engaged in the business of milk and milk products. It purchases, as packaging material, poly film, tins and containers from various manufacturers/suppliers. It was under the bona fide belief that the purchase of packaging material was purely a purchase contract and that no deduction of tax at source was to be made on payments made against such purchases. During financial year 2003-04, a survey was carried out on the assessee's business premises. It was pointed out to the assessee that payment made against the purchase of packaging material/packing material was allowable for TDS under Section 194C, as such material was in the nature of printed material. The AO treated the assessee as the assessee-in-default and passed orders under Section 201(1)/201(1A). The learned CIT(A) having allowed the assessee's appeals, the Department has filed the present appeals before us.
4. Before us, the learned Departmental Representative has submitted that the AO has rightly relied on CBDT Circular No. 715 of 8th Aug., 1995 (1995) 127 CTR (St) 13 with regard to manufacture of packing material. It is submitted that the receipts in question are work contract receipts and Section 194C has rightly been applied.
5. In response, the learned Counsel for the assessee submitted that here, no material was supplied for the manufacture. However the party manufactures as per the specifications given by the assessee and prints it. Reliance has been placed on the decision of Pune Bench of the Tribunal in the case of Wadilal Dairy International Ltd. v. Asstt. CIT (2001) 70 TTJ (Pune) 77 and that of the Ahmedabad Bench of the Tribunal in the case of Balsara Home Products Ltd. v. ITO (2005) 94 TTJ (Ahd) 970.
6. In his counter, the learned Departmental Representative has submitted that since the assessee's name is printed which becomes work contract and that supply of material is only incidental and not decisive.
7. In Wadilal Dairy International Ltd. (supra), it has been held, that the requirement of Section 194C is that in order to attract the provisions, the assessee should have made payment to a contractor for carrying out any contract, including supply of labour for carrying out any work. The expression "contractor for carrying out any work" implies that the contractor should have carried out such activities. The term "carried out" suggests an executory contract rather than a case of mere supply or sale of goods. If a person engages the services of another and gives him a job of manufacturing goods or articles and for the purpose, supplies him raw material, it would be a clear case of a contract of work. In such cases, the provisions of Section 194C would undoubtedly be applicable. But if, on the other hand, a manufacturer on his own purchases material and manufactures product which he sells to the assessee and it may be that such product might be customer-specific as per the requirement of the customer, it is still a case of sale and not for carrying out any work. In such sale which is customer-specific, the fact that the goods manufactured are according to the requirement of the customer does not mean or imply that any work has been carried out on behalf of the contractee.
8. In our case, just because the assessee's name is being printed on the packing material, the contract cannot be termed as a works contract and it cannot be said that supply of material is incidental and not decisive. Wadilal Dairy (supra) as followed in Balsara Home Products (supra) squarely covers the matter in favour of the assessee. The decision of the Hon'ble Supreme Court in the case of State of Tamil Nadu v. Anandam Vishwanathan in Civil Appeal Nos. 2346-47 of 1978 and 2609 of 1988, dt. 24th Jan., 1989, Copies of which decision, have been placed on record by the Department, is not applicable. In that case, the assessee had entered into contracts with universities and other educational institutions in the country for printing question paper for the said educational institutions. The question was whether taxable turnover of the assessee would include printing and block marking charges or not. Their Lordships of the Hon'ble Supreme Court held, inter alia, that in each case, the nature of the contract and the transaction must be found out; that this is possible only when the intention of the parties is found out.
9. In the case before us, the assessee purchases packing material from independent manufacturers, sells similar materials to other customers also. The manufacturers produce material as per the specifications provided by the customers. The manufacturers sell the package material on the basis of a purchase order issued by the assessee. The excise duty and sales-tax on the manufactured and sale of packaging material is paid by manufacturers and is included in its invoice raised on the assessee. The ownership of the packaging material passes on to the assessee only after the material is delivered to the assessee. If the packaging material is damaged or destroyed before it is delivered to the assessee, the loss is to be borne out by the manufacturer to the moulds, dyes, etc. used in the manufacture of packaging material owned by the manufacturer. The manufacturer is under no obligation to part with them at all in case the assessee stops producing from the manufacture. The purchase of packaging material is thus made on principal to principal basis. There is no element of any work involved. The invoice raised on the assessee by the manufacturer does not bear any break-up of the cost of material or cost of labour. All raw materials were purchased independently by the manufacturers for use in the production of packaging material and no material is supplied by the assessee. There is no long-term contract entered into between the assessee and the manufacturers. If the assessee is not satisfied with the quality of the product, it goes to another manufacturer. The assessee purchased only the quantity indicated in the purchase order. It is not obliged to purchase any excess production. The cost of imported raw material for the manufacture of product is a substantial portion of the total value of the product/packaging material sold to the assessee. For most of the packaging material printing is incidental. Many details mentioned in the packaging material are to comply with the statutory requirements under the relevant laws. These requirements are not specific to the assessee, being as per the statutory and industry/regulations. Thus, the transactions between the manufacturers and the assessee are transactions of sale and purchase on a principal to principal basis. The Department has not been able to dislodge the categorical finding of fact recorded by the learned CIT(A). Moreover, it is seen that the learned CIT(A) has placed reliance on the decision of Hon'ble Supreme Court in Hindustan Shipyard Ltd. v. State of Andhra Pradesh (2000) 119 STC 3533 (SC) wherein it has been held that production of goods as per the specifications prescribed by the buyer is not the conclusive determining factor as to the true nature of the transaction. So, the customization of the packing material supplied in accordance with the specifications laid down by the assessee, would not make the transaction into a transaction of contract. Before us, the Department has. not been able to show as to how Hindustan Shipyard Ltd, (supra) which is a judgment later in point of time than Anandam Vishwanathan (supra), besides being applicable on merits, is not to be applied.
10. Apropos CBDT Circular No. 715, the learned CIT(A) has noted and the Department has not been able to controvert this, that the stand of the assessee in this regard was that the circular has clarified that Section 194C is applicable for printed material only. It has also been noted that the AO himself, while admitting this position, observed in his order that TDS could have been avoided by the assessee where two bills are raised, one for the purchase of material and the other for the printing work, and then, the assessee could have been justified in deducting tax at source only on the amount paid for the printing work and not on purchase of material. The Department has not been able to counter such stand of the assessee. Once the circular in question is only applicable to packaging material, it cannot be said that the learned CIT(A) has erred in ignoring it.
11. In view of the above discussion, we find no merit in the ground raised by the Department. This common ground is, therefore, rejected.
ITA Nos. 4944 to 4947/Del/2004 :
12. Here too, the learned CIT(A) has disposed of the appeals before him, by a composite order dt. 13th Sept., 2004.
13. The common grounds taken before us by the Department are that the learned CIT(A) has erred :
(i) in deleting the demand under Section 201/201(1A) by concluding that the transaction between the manufacturers of packaging material and the deductor company are the transactions of sale and purchase on a principal to principal basis and not the transactions of contract covered under Section 194C of the IT Act;
(ii) in not considering the facts that the goods were got manufactured with the specifications given by the assessee and the commercial value of these goods, if not received by the deductor, is nil;
(iii) in ignoring the CBDT Circular No. 715 (question No. 15), dt. 8th Aug., 1995;
(iv) the decision of the Hon'ble Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan (supra) applied, wherein the issue of contract vis-a-vis sale/purchase has been dwelt with in great detail and, it was held that the transactions of similar nature are the transactions of contract and not that of sale and purchase.
14. The matter has been discussed by us at length while disposing of ITA Nos. 4939 to 4941/Del/2004. The matter involved in the present appeals is essentially identical to that involved there. Therefore, in consonance with our findings recorded in those appeals, the grounds raised by the Department in these appeals, are also rejected as devoid of merit.
15. In the result, all the seven appeals of the Department are dismissed.