TDS on printers bill
This query is : Resolved
12 May 2009
I have received a printers bill on which vendors charge VAT , I think it is a contract for sale not work contract.But in my ofice some one in head office have different opnion as per his view TDS should be dectible. I have read case law where bombay high court give there opnion that it is contract for sale not work contract hence TDS shold not be decutible.
Please advice and if you have some case law on the subject please give me the refernce.
Please advice and if you have some case law on the subject please give me the refernce.
12 May 2009
No TDs on Printer Purchase.
12 May 2009
If vat is charged by the vendor it is a sale invoice. No need to deduct income tax on the said bill. However,as you said,courts have distinguished 'contract of sale' and 'contract for sale'in like situations.
12 May 2009
If only the bills is only for printing charges by the vendors and all RM ( paper) etc is being supplied by your company the agreement is of contractor in nature as defined in the section 194C, the TDS is attracted. If the vendor supplies your the printed material and raises a bill for sale of printed material the contract would be for supplies of material, TDS is not attracted. You can refer to circular no - 681 and 13/dated 13/12/2006 and circular no 715. The case of the Dabur India,LG Elecronics, Wilmer Schewab may of help to you.
12 May 2009
Please read this article:[Source BCAS]
1. Issue for consideration :
1.1 U/s.194C, a person is required to deduct tax at source, at the time of making payment to a resident for carrying out any work, including supply of labour for carrying out any work. The tax is required to be deducted at the rate and the time specified by S. 194C and the tax so deducted is required to be deposited within the time provided by Rule 30 of the Income-tax Rules.
1.2 The expression ‘carrying out any work’ has been a subject matter of judicial controversy, for long. The Section does not define the said expression nor does it provide any guidelines for enabling a payer to determine whether a payment made by him was for carrying out any work or was for the purchase of material.
1.3 Ordinarily, a payment is made either for getting work done in respect of material supplied by the payer or is made for purchase of material. In the first case, the tax is required to be deducted at source, and in the latter case, no tax is required to be deducted. This simplicity achieves a complexity where a person makes payment for purchase of material as well as for working on such material. Further, difficulties arise in cases of a supplier-manufacturer of general merchandise, where he produces the same product as per the specifications of the payer and also carries out some labour work in the process of such manufacturing. In cases of composite payments for composite contracts to the same person, for supply of material as also for supply of labour, it is difficult for a person to determine his liability to deduct tax u/s.194C. A dilemma is faced by such a person regarding the true nature of such payments. Whether the payment was made for supply of any article or for the supply of labour, or both, is a question a payer has to address. For example, a person purchasing packing material like corrugated boxes or bags or wrappers on which the supplier undertakes to carry out printing as per the specifications of the payers or purchasing the customer-specific bus-body from a manufacturer, who supplies the material as well.
1.4 The Supreme Court in the case of Associated Cement Co. Ltd., 201 ITR 435, considered this contentious issue in detail and laid down the guidelines for deciding whether the payment was made for carrying out any work or was made for purchase of any material.
1.5 Subsequent to the decision of the Supreme Court, the Section was amended by inserting Explanation III to define the term ‘work’. However, the issue of the liability to deduct tax at source in cases of composite contracts continues to be debatable.
1.6 Different views are available on the subject, which require consideration.
2. Wadilal Dairy International Ltd.’s case :
2.1 The Pune Tribunal, in the case of Wadilal Dairy International Ltd. v. ACIT, 81 ITD 238, had an occasion to address the issue under consideration. In that case, the assessee company was engaged in the manufacture of dairy products. The company purchased packing material such as big cartons, small bags, plastic bags, wrapping material, etc. from various manufacturers by placing orders with desired specifications. The suppliers were also required to print the company’s name, monogram, nature of product, quantity of product and such other details. The suppliers of packing material were required to pay excise duty and sales-tax on the selling price of such packing material, which included the cost of printing on such material.
2.2 The Assessing Officer, in the context of the liability of the company to deduct tax at source, held that the assessee was required to deduct tax at source u/s.194C from the payments made to the suppliers, since the said payments were made for such purchases which were supplies as per the desired specifications, which rendered such purchases as contracts liable to deduction u/s.194C. He also held that the printing on the material was not incidental but was a part of the contract and the payment therefor was liable for deduction of tax at source. The CIT(A) upheld the action of the Assessing Officer.
2.3 In the appeal by the company before the ITAT, it was contended that :
(a) the payment was made for purchase of goods and was not for contract of work and labour;
(b) the items purchased by the company were subjected to levy of excise duty and sales-tax which were charged by the supplier and were paid by the company;
(c) the suppliers had purchased the required raw material for manufacturing the packing articles on their own account and that neither raw material nor any part of such articles were supplied to the company;
(d) the fact that the packing articles were manufactured as per the specifications of the company, was not a determining factor; and
(e) the suppliers had paid income-tax in their own cases.
Reliance was placed on the following decisions :
(1) State of Himachal Pradesh v. Associated Hotels, 29 STC 474(SC)
(2) Hindustan Aeronautics Ltd. v. State of Karnataka, 55 STC 314 (SC)
(3) A.P. State Electricity Board v. Collector of Excise, 95 STC 595 (SC)
(4) Chief Electoral Officer v. ITO, 68 ITD 439 (Chd.).
2.4 The Revenue contended that the payments were made for an integrated and indivisible works contract and that it was not possible to segregate a part of the contract which could be regarded as a works contract. It relied on the answer to Question No. 15 of the Board’s Circular No. 751 and relied on the decision in the case of CIT v. Kumudan Publications (P) Ltd., 188 ITR 84 (Mad.). In addition, it placed reliance on the following cases decided under the Sales Tax Law :
(1) State of Madras v. Richardson Cruddas Ltd., 21 STC 245 (SC)
(2) Mather & Platt v. State of Maharashtra, 24 STC 496 (Bom.)
(3) State of Rajasthan v. Man. Indl. Corp. Ltd., 24 STC 349 (SC)
(4) State of Gujarat, CST v. Variety Body Builders, 38 STC 176 (SC)
(5) CST v. Kamani Engg. Corp. Ltd., 38 STC 503 (Bom.)
(6) Sentinel Rolling Shutters & Engg. Co. v. CST, 42 STC 409 (SC)
(7) Uni Abex Alloy Products Ltd. v. State of Maharashtra, 58 STC 37.
2.5 The ITAT observed that :
(a) the Section required that the assessee should have made payment to a contractor for carrying out any work for making him liable for deducting tax at source;
(b) the relevant aspect to be seen was whether the assessee had engaged any contractor for carrying out any work and whether such contractor had carried out such activities;
(c) the term ‘carried out’ suggested on executory contract rather than a case of a mere supply or sale of goods;
(d) if a person engaged the services of another and gave a job of manufacturing goods or articles and for that purpose supplied raw material, such would be a clear case of contract of work and the provisions of S. 194C would undoubtedly be applicable to such a case;
(e) where a manufacturer purchased material on his own account and manufactured the product which is sold, the case would be that of sale of goods and not of a works contract, even where the goods were manufactured as per the specifications of the customer.
2.6 The ITAT relied on the decision of the Supreme Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd., 29 STC 474, for guidance in regard to composite contracts, wherein the Court held that the nature in such cases was to be determined with reference to the main object and if the main object was to transfer the property in goods, a chattel as a chattel, then it was a case of a sale. It also relied on Circular No. 681 dated 8-3-1991 of the CBDT and the cases of Hindustan Aeronautics Ltd. and the Chief Electoral Officer, cited by the assessee, to hold that the payment made by the company to the supplier of packing articles was not liable to deduction of tax at source u/s.194C of the Act.
2.7 The ITAT held that the decision of the full bench of the Bombay High Court, in the case of Sarvodaya Printing Press, 93 STC 387, relied upon by the Revenue, did not assist the case of the Revenue. It noted that the facts in that case were distinguishable. The assessee in that case was running a printing press where only job work was done, and the Bombay High Court, having regard to the basic circumstances and the special type of job work done, had held that the supply represented a works contract. The ITAT also observed that the decision of the Madras High Court in the case of Kumudan Publications (supra), did not help the case of the assessee because the Court in that case had held that, from the terms of the agreement, it was seen that the printer in that case had produced the magazines with the help of the materials supplied by the payer. In that case, the assessee was engaged in the business of printing the periodicals.
2.8 The ITAT accordingly held that in the case before them, the main purpose in buying packing material was to obtain goods for the purposes of packing and the fact that incidentally some printing was required to be done by the supplier, was of no consequence. It, therefore, held that no works contract was involved and the provisions of S. 194C were not applicable.
3. Narmada Cement Co. Ltd.’s case :
3.1 The assessee, during the course of business, entered into an agreement for supply of woven sacks for packing of cement. The arrangement involved supply of printed packing material. The conditions for printing were as under :
"Bags are to be supplied branded on both sides (for NCCl and L&T) as per artwork using rubber stores. Printing should be in black ink except in PPC bags. Narmada logo in all should be in dark orange. In PPC bags to be supplied to NCCL, the entire printing should be in red except the L&T logo which should be in dark blue. The manufacturer’s logo should appear only on the right and bottom of the reverse side enclosed in a block. Corona treatment is a must for all bags supplied to us."
3.2 The supply of printed packing material, in the opinion of the Assessing Officer, was liable to deduction of tax at source u/s.194C inasmuch as said packing material was printed as per the specifications of the assessee company. The Assessing Officer observed that printing such material was a specialised job and was not available in the open market. He also observed that the assessee had the right of rejection and on rejection, the packing material had no value at all. The Assessing Officer therefore, held that the principal object of the assessee was to obtain printed material and the supply thereof was not merely a sale of packing material. In the appeal by the company, the CIT(A) relying on the decision in the case of Wadilal Dairy International Ltd. (supra), held that the supply of bags to the company was a case of purchase of material and fell outside the purview of S. 194C of the Act.
3.3 The Revenue, in the appeal before the ITAT, contended that the printed packing material was supplied to the assessee as per assessee’s specifications and that the supply of material on which the matter was printed was incidental to the main contract. It relied on Circular No. 715 dated 8-8-1995 as also on Circular No. 681 dated 8-3-1994. The Revenue further relied on the decision in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd., 29 STC 477 (SC) and Sarvodaya Printing Press, 93 STC 387 (Bom.) in addition to the decision of Pune Tribunal in the cases of BDA Ltd., 84 ITD 442 (Pune) and Warana Sahakari Doodh Utpadak Prakriya Sangh Ltd. (Pune) (unreported) dated 10-2-2002.
3.4 The assessee company relied on the decision in the case of Wadilal Dairy International Ltd. (supra) and contended that, in the facts of the case of the assessee company, it was not liable to deduct tax at source. It further contended that the facts in the company’s case were different from the facts in the case of Saryodaya Printing Press (supra). It submitted that the cost of printing of the packing material purchased was nominal and that it was not liable for deduction of tax at source.
3.5 The ITAT held that having regard to the special type of job work done and other basic circumstances, the supply of packing material did not represent a transaction of purchase but was a works contract which was subject to deduction of tax at source. The ITAT observed that :
(a) the principal object was to get the material printed and not to purchase the printed material;
(b) the charges were composite;
(c) the material was specially designed as per the company’s specifications and the material on rejection was to be destroyed and had no market value;
(d) the property in the goods, though passed to the assessee company, was incidental and ancillary to the contract of printing and that there was no transfer of chattel qua chattel.
3.6 The ITAT declined to follow the decision in the case of Wadilal Dairy (supra) as the facts of the case, in the opinion of the Tribunal, were on all fours with the facts in the case of Sarvoyada Press decided by the full bench of the Bombay High Court. It held that the doctrine of precedent was applicable to a High Court decision, that the law declared by the High Court was to be followed by the Tribunal under the jurisdiction of such High Court, and that not following such a decision would tantamount to committing contempt of that Court.
3.7 The Tribunal accordingly held that purchase of printed material as per specifications supplied by the assessee was nothing but works contract. The Tribunal, in deciding the case, followed the decision in the case of BDA Ltd. v. ITO, 84 ITD 443 (Pune).
4. Observations :
4.1 S. 194C was inserted by the Finance Act, 1972 w.e.f. 1-4-1972. The scope of the Section is clarified by the CBDT from time to time by issue of Circulars, particularly Nos. 433 dated 25-9-1985, 487 dated 27-1-1988, 558 dated 28-3-1990, 681 dated 8-3-1991, 713 to 716, 720 and 723 dated 19-9-1995. Explanation III has been inserted by the Finance Act, 1995 w.e.f. 1-7-1995 to define the expression ‘work’. The said Explanation defines ‘work’ in an inclusive manner and is capable of further inclusion, in addition to the specified works of advertising, broadcasting and telecasting, carriage of goods and passengers and catering. In essence, the Section requires deduction of tax at source at the time of payment for carrying out any work. The expression ‘carrying out any work’ remains undefined in the Income-tax Act.
4.2 The Supreme Court in the case of Associated Cement Co. Ltd. v. CIT, 201 ITR 435 held that the expression ‘work’ envisaged in S. 194C(1) was of a wide import and covered ‘any work’ which one could get carried out through a contractor under the contract. The Court in that decision made it abundantly clear that the meaning of the term ‘work’ could not be construed to be confined to the expression ‘works contract’ alone and that one will be required to look beyond the meaning of the expression ‘works contract’ while supplying the meaning to the term ‘work’. The dictionary meaning of the term ‘work’ also is very wide and includes bestowing labour, and that upon which labour has been bestowed; (Judicial Dictionary by K. J. Aiyer and Stroud’s Judicial Dictionary).
4.3 In the advent of the decision of the highest Court, in the Associated Cement Co. Ltd.’s case, the recourse, till then available, of heavily relying on the decisions delivered under the Sales Tax Laws, is no more available. It was usual in the past, to decide the issue by determining whether the payment could be construed to be payment for purchase of goods as per the Sales Tax Laws. If yes, it was not attracting the provisions of S. 194C. Contrary to that, the provisions were found to have been attracted where the payment was held to have been made for purchases with labour, which were treated as ‘works contract’ under the Sales Tax Laws. This position in law, after Associated Cement Co.’s case, is brought about by the decision of the Madras High Court in the case of Madras Bar Association v. CBDT, 216 ITR 240.
4.4 Under the circumstances, the situation has become very fluid, leaving payments involving composite contracts exposed to interpretation. Each case of a composite contract can make a decision difficult, in view of the development of the law noted above.
4.5 It appears that factors like carrying out of work as per specifications, the right to rejection by the payer and the market value of the rejected material are no more the factors which can decide the issue under consideration. Such factors at the most will have an ancillary value. The factors that, in our opinion, are relevant are the passing of the property in goods, the value of the material and its composition with the value of the labour and the main objective behind the purchase or the composite contract.
4.6 In the above context, it is important to note the findings of the Supreme Court in the case of Associated Hotels of India Ltd. (supra) which reads as under :
"if the main object is to transfer property in or deliver the possession of, a chattel as a chattel, then it is a contract of sale. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of materials, is conclusive, although such matters may be taken into consideration in determining whether the contract is in substance one for work and labour or one for the sale of chattel".
4.7 It is important to take note of the Circular No. 681 dated 8-3-1991, particularly paras 7(vi)(b) and (c), which paras are not struck down so far by the Courts and are valid and binding on the authorities. These paragraphs provide a very useful guidance in deciding the issue under consideration of the liability to deduct tax at source in the cases of composite contracts. Para (b) states that where the contractor undertakes to supply any article or thing fabricated according to the specification given by the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of S. 194C. In para (c) the Board has suggested that in case of doubt, the issue should be decided in light of the principles laid down by the decision of the Supreme Court in the case of Associated Hotels of India (supra).
4.8 The said Circular will put a payer outside the TDS net if he satisfies the following relevant conditions :
(a) the contract is for supply of any article or thing
(b) article is fabricated according to the specification by the specified person.
(c) the property in goods passes on delivery of goods.
In fact, condition (b) above works in favour of no TDS, even in cases where the work is carried out as per the specification of the payer. The Circular clarifies the stand of the Board in all cases of composite contracts to the effect that those cases which can be construed as contract for sale by applying the above guidelines will not be liable to deduction of tax at source. No undue importance should be given to the requirement that the specification be given by the Government or any other specified person.
4.9 The above referred Board’s Circular No. 681 confirms that the concepts of ‘works contract’ and ‘sale’ as envisaged under the Sales Tax Laws have been imported in considering and interpreting S. 194C by the Board itself.
4.10 In the context of packing material, what is important is to decide as to whether the contract is for purchase of printed material or for getting the packing material printed. If the main purpose of buying packing material was to obtain the goods for the purpose of packing and the fact that incidentally some printing was required to be done by the supplier will be of no consequence.
4.11 The decisions in the cases of Narmada Cement and BDA Ltd., though delivered later, were the decisions of a Single Member while the earlier decision in the Wadilal Dairy International’s case, of the same Pune Bench, was delivered by a Division Bench. It is not possible to generalise that all cases of purchase of printed material as per specifications supplied are nothing but works contract, neither it is possible to generalise that all cases of composite contracts are outside the TDS net. "The decision of the ITAT in the BDA Ltd.’s case, followed by the Revenue in the case of Narmada Cement, is overruled by the Bombay High Court in appeal No. 44/2003 dated 8th March 2004. BCAJ, page 12, April 2004. In delivering that decision, the High Court tacitly approved the decision of the division bench in the case of Wadilal Dairy International. The decision of the Bombay High Court settles the controversy for the time being, the issue however will continue to be contentious and the facts will play a major role in deciding the issue."
4.12 A note of Circular No. 715 dated 8-8-1995 is also required to be taken, wherein it has been provided that supply of printed material is covered by S. 194C. This Circular shall not be read to mean that all cases of supply of printed material are liable to deduction of tax at source. It is only when the contract is for printing of material and not for purchasing of material, that the Circular may be applicable. The Hyderabad Tribunal, in the case of Andhra Pradesh State Road Transport Corporation v. DCIT, 119 Taxman 73, has held that the fact that specifications were provided by the assessee corporation to suit the bus bodies according to its requirements, did not alter the basic crux and character of the contract, which was nothing but a contract for purchase and sale of buses.
1. Issue for consideration :
1.1 U/s.194C, a person is required to deduct tax at source, at the time of making payment to a resident for carrying out any work, including supply of labour for carrying out any work. The tax is required to be deducted at the rate and the time specified by S. 194C and the tax so deducted is required to be deposited within the time provided by Rule 30 of the Income-tax Rules.
1.2 The expression ‘carrying out any work’ has been a subject matter of judicial controversy, for long. The Section does not define the said expression nor does it provide any guidelines for enabling a payer to determine whether a payment made by him was for carrying out any work or was for the purchase of material.
1.3 Ordinarily, a payment is made either for getting work done in respect of material supplied by the payer or is made for purchase of material. In the first case, the tax is required to be deducted at source, and in the latter case, no tax is required to be deducted. This simplicity achieves a complexity where a person makes payment for purchase of material as well as for working on such material. Further, difficulties arise in cases of a supplier-manufacturer of general merchandise, where he produces the same product as per the specifications of the payer and also carries out some labour work in the process of such manufacturing. In cases of composite payments for composite contracts to the same person, for supply of material as also for supply of labour, it is difficult for a person to determine his liability to deduct tax u/s.194C. A dilemma is faced by such a person regarding the true nature of such payments. Whether the payment was made for supply of any article or for the supply of labour, or both, is a question a payer has to address. For example, a person purchasing packing material like corrugated boxes or bags or wrappers on which the supplier undertakes to carry out printing as per the specifications of the payers or purchasing the customer-specific bus-body from a manufacturer, who supplies the material as well.
1.4 The Supreme Court in the case of Associated Cement Co. Ltd., 201 ITR 435, considered this contentious issue in detail and laid down the guidelines for deciding whether the payment was made for carrying out any work or was made for purchase of any material.
1.5 Subsequent to the decision of the Supreme Court, the Section was amended by inserting Explanation III to define the term ‘work’. However, the issue of the liability to deduct tax at source in cases of composite contracts continues to be debatable.
1.6 Different views are available on the subject, which require consideration.
2. Wadilal Dairy International Ltd.’s case :
2.1 The Pune Tribunal, in the case of Wadilal Dairy International Ltd. v. ACIT, 81 ITD 238, had an occasion to address the issue under consideration. In that case, the assessee company was engaged in the manufacture of dairy products. The company purchased packing material such as big cartons, small bags, plastic bags, wrapping material, etc. from various manufacturers by placing orders with desired specifications. The suppliers were also required to print the company’s name, monogram, nature of product, quantity of product and such other details. The suppliers of packing material were required to pay excise duty and sales-tax on the selling price of such packing material, which included the cost of printing on such material.
2.2 The Assessing Officer, in the context of the liability of the company to deduct tax at source, held that the assessee was required to deduct tax at source u/s.194C from the payments made to the suppliers, since the said payments were made for such purchases which were supplies as per the desired specifications, which rendered such purchases as contracts liable to deduction u/s.194C. He also held that the printing on the material was not incidental but was a part of the contract and the payment therefor was liable for deduction of tax at source. The CIT(A) upheld the action of the Assessing Officer.
2.3 In the appeal by the company before the ITAT, it was contended that :
(a) the payment was made for purchase of goods and was not for contract of work and labour;
(b) the items purchased by the company were subjected to levy of excise duty and sales-tax which were charged by the supplier and were paid by the company;
(c) the suppliers had purchased the required raw material for manufacturing the packing articles on their own account and that neither raw material nor any part of such articles were supplied to the company;
(d) the fact that the packing articles were manufactured as per the specifications of the company, was not a determining factor; and
(e) the suppliers had paid income-tax in their own cases.
Reliance was placed on the following decisions :
(1) State of Himachal Pradesh v. Associated Hotels, 29 STC 474(SC)
(2) Hindustan Aeronautics Ltd. v. State of Karnataka, 55 STC 314 (SC)
(3) A.P. State Electricity Board v. Collector of Excise, 95 STC 595 (SC)
(4) Chief Electoral Officer v. ITO, 68 ITD 439 (Chd.).
2.4 The Revenue contended that the payments were made for an integrated and indivisible works contract and that it was not possible to segregate a part of the contract which could be regarded as a works contract. It relied on the answer to Question No. 15 of the Board’s Circular No. 751 and relied on the decision in the case of CIT v. Kumudan Publications (P) Ltd., 188 ITR 84 (Mad.). In addition, it placed reliance on the following cases decided under the Sales Tax Law :
(1) State of Madras v. Richardson Cruddas Ltd., 21 STC 245 (SC)
(2) Mather & Platt v. State of Maharashtra, 24 STC 496 (Bom.)
(3) State of Rajasthan v. Man. Indl. Corp. Ltd., 24 STC 349 (SC)
(4) State of Gujarat, CST v. Variety Body Builders, 38 STC 176 (SC)
(5) CST v. Kamani Engg. Corp. Ltd., 38 STC 503 (Bom.)
(6) Sentinel Rolling Shutters & Engg. Co. v. CST, 42 STC 409 (SC)
(7) Uni Abex Alloy Products Ltd. v. State of Maharashtra, 58 STC 37.
2.5 The ITAT observed that :
(a) the Section required that the assessee should have made payment to a contractor for carrying out any work for making him liable for deducting tax at source;
(b) the relevant aspect to be seen was whether the assessee had engaged any contractor for carrying out any work and whether such contractor had carried out such activities;
(c) the term ‘carried out’ suggested on executory contract rather than a case of a mere supply or sale of goods;
(d) if a person engaged the services of another and gave a job of manufacturing goods or articles and for that purpose supplied raw material, such would be a clear case of contract of work and the provisions of S. 194C would undoubtedly be applicable to such a case;
(e) where a manufacturer purchased material on his own account and manufactured the product which is sold, the case would be that of sale of goods and not of a works contract, even where the goods were manufactured as per the specifications of the customer.
2.6 The ITAT relied on the decision of the Supreme Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd., 29 STC 474, for guidance in regard to composite contracts, wherein the Court held that the nature in such cases was to be determined with reference to the main object and if the main object was to transfer the property in goods, a chattel as a chattel, then it was a case of a sale. It also relied on Circular No. 681 dated 8-3-1991 of the CBDT and the cases of Hindustan Aeronautics Ltd. and the Chief Electoral Officer, cited by the assessee, to hold that the payment made by the company to the supplier of packing articles was not liable to deduction of tax at source u/s.194C of the Act.
2.7 The ITAT held that the decision of the full bench of the Bombay High Court, in the case of Sarvodaya Printing Press, 93 STC 387, relied upon by the Revenue, did not assist the case of the Revenue. It noted that the facts in that case were distinguishable. The assessee in that case was running a printing press where only job work was done, and the Bombay High Court, having regard to the basic circumstances and the special type of job work done, had held that the supply represented a works contract. The ITAT also observed that the decision of the Madras High Court in the case of Kumudan Publications (supra), did not help the case of the assessee because the Court in that case had held that, from the terms of the agreement, it was seen that the printer in that case had produced the magazines with the help of the materials supplied by the payer. In that case, the assessee was engaged in the business of printing the periodicals.
2.8 The ITAT accordingly held that in the case before them, the main purpose in buying packing material was to obtain goods for the purposes of packing and the fact that incidentally some printing was required to be done by the supplier, was of no consequence. It, therefore, held that no works contract was involved and the provisions of S. 194C were not applicable.
3. Narmada Cement Co. Ltd.’s case :
3.1 The assessee, during the course of business, entered into an agreement for supply of woven sacks for packing of cement. The arrangement involved supply of printed packing material. The conditions for printing were as under :
"Bags are to be supplied branded on both sides (for NCCl and L&T) as per artwork using rubber stores. Printing should be in black ink except in PPC bags. Narmada logo in all should be in dark orange. In PPC bags to be supplied to NCCL, the entire printing should be in red except the L&T logo which should be in dark blue. The manufacturer’s logo should appear only on the right and bottom of the reverse side enclosed in a block. Corona treatment is a must for all bags supplied to us."
3.2 The supply of printed packing material, in the opinion of the Assessing Officer, was liable to deduction of tax at source u/s.194C inasmuch as said packing material was printed as per the specifications of the assessee company. The Assessing Officer observed that printing such material was a specialised job and was not available in the open market. He also observed that the assessee had the right of rejection and on rejection, the packing material had no value at all. The Assessing Officer therefore, held that the principal object of the assessee was to obtain printed material and the supply thereof was not merely a sale of packing material. In the appeal by the company, the CIT(A) relying on the decision in the case of Wadilal Dairy International Ltd. (supra), held that the supply of bags to the company was a case of purchase of material and fell outside the purview of S. 194C of the Act.
3.3 The Revenue, in the appeal before the ITAT, contended that the printed packing material was supplied to the assessee as per assessee’s specifications and that the supply of material on which the matter was printed was incidental to the main contract. It relied on Circular No. 715 dated 8-8-1995 as also on Circular No. 681 dated 8-3-1994. The Revenue further relied on the decision in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd., 29 STC 477 (SC) and Sarvodaya Printing Press, 93 STC 387 (Bom.) in addition to the decision of Pune Tribunal in the cases of BDA Ltd., 84 ITD 442 (Pune) and Warana Sahakari Doodh Utpadak Prakriya Sangh Ltd. (Pune) (unreported) dated 10-2-2002.
3.4 The assessee company relied on the decision in the case of Wadilal Dairy International Ltd. (supra) and contended that, in the facts of the case of the assessee company, it was not liable to deduct tax at source. It further contended that the facts in the company’s case were different from the facts in the case of Saryodaya Printing Press (supra). It submitted that the cost of printing of the packing material purchased was nominal and that it was not liable for deduction of tax at source.
3.5 The ITAT held that having regard to the special type of job work done and other basic circumstances, the supply of packing material did not represent a transaction of purchase but was a works contract which was subject to deduction of tax at source. The ITAT observed that :
(a) the principal object was to get the material printed and not to purchase the printed material;
(b) the charges were composite;
(c) the material was specially designed as per the company’s specifications and the material on rejection was to be destroyed and had no market value;
(d) the property in the goods, though passed to the assessee company, was incidental and ancillary to the contract of printing and that there was no transfer of chattel qua chattel.
3.6 The ITAT declined to follow the decision in the case of Wadilal Dairy (supra) as the facts of the case, in the opinion of the Tribunal, were on all fours with the facts in the case of Sarvoyada Press decided by the full bench of the Bombay High Court. It held that the doctrine of precedent was applicable to a High Court decision, that the law declared by the High Court was to be followed by the Tribunal under the jurisdiction of such High Court, and that not following such a decision would tantamount to committing contempt of that Court.
3.7 The Tribunal accordingly held that purchase of printed material as per specifications supplied by the assessee was nothing but works contract. The Tribunal, in deciding the case, followed the decision in the case of BDA Ltd. v. ITO, 84 ITD 443 (Pune).
4. Observations :
4.1 S. 194C was inserted by the Finance Act, 1972 w.e.f. 1-4-1972. The scope of the Section is clarified by the CBDT from time to time by issue of Circulars, particularly Nos. 433 dated 25-9-1985, 487 dated 27-1-1988, 558 dated 28-3-1990, 681 dated 8-3-1991, 713 to 716, 720 and 723 dated 19-9-1995. Explanation III has been inserted by the Finance Act, 1995 w.e.f. 1-7-1995 to define the expression ‘work’. The said Explanation defines ‘work’ in an inclusive manner and is capable of further inclusion, in addition to the specified works of advertising, broadcasting and telecasting, carriage of goods and passengers and catering. In essence, the Section requires deduction of tax at source at the time of payment for carrying out any work. The expression ‘carrying out any work’ remains undefined in the Income-tax Act.
4.2 The Supreme Court in the case of Associated Cement Co. Ltd. v. CIT, 201 ITR 435 held that the expression ‘work’ envisaged in S. 194C(1) was of a wide import and covered ‘any work’ which one could get carried out through a contractor under the contract. The Court in that decision made it abundantly clear that the meaning of the term ‘work’ could not be construed to be confined to the expression ‘works contract’ alone and that one will be required to look beyond the meaning of the expression ‘works contract’ while supplying the meaning to the term ‘work’. The dictionary meaning of the term ‘work’ also is very wide and includes bestowing labour, and that upon which labour has been bestowed; (Judicial Dictionary by K. J. Aiyer and Stroud’s Judicial Dictionary).
4.3 In the advent of the decision of the highest Court, in the Associated Cement Co. Ltd.’s case, the recourse, till then available, of heavily relying on the decisions delivered under the Sales Tax Laws, is no more available. It was usual in the past, to decide the issue by determining whether the payment could be construed to be payment for purchase of goods as per the Sales Tax Laws. If yes, it was not attracting the provisions of S. 194C. Contrary to that, the provisions were found to have been attracted where the payment was held to have been made for purchases with labour, which were treated as ‘works contract’ under the Sales Tax Laws. This position in law, after Associated Cement Co.’s case, is brought about by the decision of the Madras High Court in the case of Madras Bar Association v. CBDT, 216 ITR 240.
4.4 Under the circumstances, the situation has become very fluid, leaving payments involving composite contracts exposed to interpretation. Each case of a composite contract can make a decision difficult, in view of the development of the law noted above.
4.5 It appears that factors like carrying out of work as per specifications, the right to rejection by the payer and the market value of the rejected material are no more the factors which can decide the issue under consideration. Such factors at the most will have an ancillary value. The factors that, in our opinion, are relevant are the passing of the property in goods, the value of the material and its composition with the value of the labour and the main objective behind the purchase or the composite contract.
4.6 In the above context, it is important to note the findings of the Supreme Court in the case of Associated Hotels of India Ltd. (supra) which reads as under :
"if the main object is to transfer property in or deliver the possession of, a chattel as a chattel, then it is a contract of sale. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of materials, is conclusive, although such matters may be taken into consideration in determining whether the contract is in substance one for work and labour or one for the sale of chattel".
4.7 It is important to take note of the Circular No. 681 dated 8-3-1991, particularly paras 7(vi)(b) and (c), which paras are not struck down so far by the Courts and are valid and binding on the authorities. These paragraphs provide a very useful guidance in deciding the issue under consideration of the liability to deduct tax at source in the cases of composite contracts. Para (b) states that where the contractor undertakes to supply any article or thing fabricated according to the specification given by the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of S. 194C. In para (c) the Board has suggested that in case of doubt, the issue should be decided in light of the principles laid down by the decision of the Supreme Court in the case of Associated Hotels of India (supra).
4.8 The said Circular will put a payer outside the TDS net if he satisfies the following relevant conditions :
(a) the contract is for supply of any article or thing
(b) article is fabricated according to the specification by the specified person.
(c) the property in goods passes on delivery of goods.
In fact, condition (b) above works in favour of no TDS, even in cases where the work is carried out as per the specification of the payer. The Circular clarifies the stand of the Board in all cases of composite contracts to the effect that those cases which can be construed as contract for sale by applying the above guidelines will not be liable to deduction of tax at source. No undue importance should be given to the requirement that the specification be given by the Government or any other specified person.
4.9 The above referred Board’s Circular No. 681 confirms that the concepts of ‘works contract’ and ‘sale’ as envisaged under the Sales Tax Laws have been imported in considering and interpreting S. 194C by the Board itself.
4.10 In the context of packing material, what is important is to decide as to whether the contract is for purchase of printed material or for getting the packing material printed. If the main purpose of buying packing material was to obtain the goods for the purpose of packing and the fact that incidentally some printing was required to be done by the supplier will be of no consequence.
4.11 The decisions in the cases of Narmada Cement and BDA Ltd., though delivered later, were the decisions of a Single Member while the earlier decision in the Wadilal Dairy International’s case, of the same Pune Bench, was delivered by a Division Bench. It is not possible to generalise that all cases of purchase of printed material as per specifications supplied are nothing but works contract, neither it is possible to generalise that all cases of composite contracts are outside the TDS net. "The decision of the ITAT in the BDA Ltd.’s case, followed by the Revenue in the case of Narmada Cement, is overruled by the Bombay High Court in appeal No. 44/2003 dated 8th March 2004. BCAJ, page 12, April 2004. In delivering that decision, the High Court tacitly approved the decision of the division bench in the case of Wadilal Dairy International. The decision of the Bombay High Court settles the controversy for the time being, the issue however will continue to be contentious and the facts will play a major role in deciding the issue."
4.12 A note of Circular No. 715 dated 8-8-1995 is also required to be taken, wherein it has been provided that supply of printed material is covered by S. 194C. This Circular shall not be read to mean that all cases of supply of printed material are liable to deduction of tax at source. It is only when the contract is for printing of material and not for purchasing of material, that the Circular may be applicable. The Hyderabad Tribunal, in the case of Andhra Pradesh State Road Transport Corporation v. DCIT, 119 Taxman 73, has held that the fact that specifications were provided by the assessee corporation to suit the bus bodies according to its requirements, did not alter the basic crux and character of the contract, which was nothing but a contract for purchase and sale of buses.
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12 May 2009
I agree with experts
I.e. No tds on printer purchase
I.e. No tds on printer purchase
23 May 2013
Dear Chakrapani sir,
I have read that for printer purchase No TDS thanks a lot,. and I have one more query we are suppling spares for imported purchase., ie we import printer and sell to our local and CSt Customers.
I want only whether TDS to be deducted for spare supply since we cover both AMC and Service for our every printer sale.
one of my customer deducted tds in both of our bill i.e., AMC and supply of spares I agree for AMC bills and I have query on spare sale bill whether this could affect TDS Or not. Please advice.
I have read that for printer purchase No TDS thanks a lot,. and I have one more query we are suppling spares for imported purchase., ie we import printer and sell to our local and CSt Customers.
I want only whether TDS to be deducted for spare supply since we cover both AMC and Service for our every printer sale.
one of my customer deducted tds in both of our bill i.e., AMC and supply of spares I agree for AMC bills and I have query on spare sale bill whether this could affect TDS Or not. Please advice.
23 May 2013
With effect from 1/10/2009, TDS attracts on AMC, u/s 194C ,in which material supply is involved.
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