No small change: Govt levies 10% tax on industrial scrap, IMFL

NEW DELHI: If you thought trading in scrap means earning small change, you are mistaken. The government reckons that tax evasion is rampant on profits generated from sale of industrial scrap and has decided to bring it into the tax net.
Sellers of industrial scrap will mandatorily collect a 10% tax at source from buyers. The move would impact a wide range of industries, including the metalurgical and plastics industry.
A similar dispensation has been put in place for the Rs 28,000-crore IMFL industry as well, despite hectic lobbying against the move. Currently, sellers of alcoholic liquor for human consumption are required to deduct a 10% tax at source from buyers. Rampant unofficial trading of IMFL prompted the government to bring this product under the tax net. The amendments to the Finance Bill ‘03 have changed the definition of ‘seller’ and ‘buyer’ to minimise the scope of litigation and widen the net.
A seller will now include individuals and Hindu undivided families (HUFs) and not just the central government, state government, company, firm or cooperative society. Tax collection at source (TCS) would be mandatory if the ‘seller’ is an individual or a HUF whose gross receipts or turnover in business crosses Rs 40 lakh in any previous year audited by an accountant. An individual or a HUF whose receipts in profession exceeds Rs 10 lakh would also be liable to collect tax if he is a seller.
Further, tax would be collected at source only at the first point of sale. This implies that the provision on TCS would apply to a wholesaler who sells such goods (IMFL, scrap etc) to a retailer, and not to a buyer in a retail sale. A public sector company is also excluded from the purview of the definition of a buyer. The amendments to the Finance Bill have also dropped a crucial provision, which states that TCS will not apply in cases where the buyer does not obtain the goods through an auction or where the sale price is fixed by any State Act. Withdrawal of this clause would minimise litigation, said officials.