Purchases made after payment of excise duty and availment of credit can not be held as job work, no TDS under section 194C

By | October 8, 2015

Where assessee had purchased goods from manufacturers and paid sales tax, excise duty etc., transaction is on principal to principal basis and does not fall within purview of section 194C


Commissioner of Income-tax TDS, Kolkata


Khadim Shoes (P.) Ltd.


IT APPEAL NO. 146 OF 2007

APRIL  8, 2015

S.N. Dutta and Aniket Mitra, Advocates for the Appellant. R. Bharadwaj, Advocate for the Respondent.


1. The subject matter of challenge in this appeal is a judgment dated 12th May, 2006 passed by the learned Income Tax Appellate Tribunal pertaining to the assessment year 2004-2005. The question which was formulated at the time of admission of the appeal, at the instance of the revenue, reads as follows:—

“Whether on the facts and in the circumstances of the case the order of the Tribunal without giving any reason at all for disagreeing with the findings of the First Adjudicating authority that the transaction between the assessee and its supplier was in the nature of work done by the supplier on behalf of the assessee i.e. ‘outsourcing’ and without reasons holding that the said transaction was a sale was perverse?”

2. The undisputed facts of the case are that the assessee a well-known merchant in footwear made purchase worth Rs.46.30 Crores approximately. The purchase and sale transactions were duly offered for taxation.

3. The assessing officer was of the opinion that the purchase for the sum of Rs.46.30 Crores was, in fact, an outsourcing and therefore, the assessee should have deducted tax at source under section 194C. He on that basis held the assessee liable for payment of Rs.1.06 Crores approximately under section 201(1)(1A) read with section 194C. The assessee preferred an appeal. The appellate authority was of the opinion that purchase worth Rs.38.39 Crores was not within the purview of section 194C for the following reasons :

‘The appellant has furnished copies of audit report, audited accounts and break-up of purchase of finished footwear. It is seen that out of total purchase of Rs.46.29 Crores, from about 140 vendors; the purchase of shoes with the logo “khadim” amounted to Rs.7.90 crores only and that too from 10 manufacturers as named by the AO in the order sheet recorded on 31.3.2005. This fact is also veriable from the application U/S.154 dated 8.6.2005.

As regards the purchase of footwear without any specified logo i.e. Rs.38.39 crores; (Rs.46.29-Rs.7.90), it is observed that the same was purchase simplicitor i.e. without any logo, label or identity mark. In view of what has been discussed in detail in the foregoing paras and in my considered opinion, purchase of footwear worth Rs.38.29 crore cannot be equated to “any work” so as to fall within the purview of Section 194C.’

4. The appellate authority, however, thought that the balance purchase for a sum of Rs.7.90 crores was within the purview of section 194C for the following reasons:—

‘I am not impressed by the argument of the appellant that the said goods could be resold by the vendors after removing the logo “khadim”. To my mind, it was a case of purchase of goods by ordering extra improvement on the goods brought by the vendors for sale to the appellant. I agree that by providing extra improvement, labels, marks, identity on the footwear brought for sale by the vendors to the appellant made them unique and distinct in a way suited to the appellant. It, therefore, amounted to awarding a specific job work to the vendors and could not be termed as purchase simplicitor.’

5. The case of the assessee has always been that the goods were purchased on the basis of samples which has not been disputed or could not be disputed by the revenue. The reasoning advanced by the CIT for the purpose of holding that the purchase worth Rs.7.90 crores amounted to awarding a specific job work to the vendors is neither supported by law nor is factually a correct finding. Goods can be sold either by sample or by description or manufactured as per requirement of the buyer. The assessee has purchased the goods and has admittedly paid sales tax, central excise duty and has in its turn availed the benefit of cenvat credit which is inconsistent with a job contract contemplated by section 194C of the Income Tax Act. Section 194C contemplates payment to a contractor for carrying out any work including supply of labour or carrying out any work. It was not the case of the revenue that the vendor of the assessee carried out any work of or for the assessee. The CIT could not dispute the fact that it was “purchase of shoes from 10 manufacturers only which were labeled and marked with the logo ‘khadim’.” Section 194C contemplates a transaction between a principal and an agent. Whereas a transaction in the nature of sell and purchase is on principal to principal basis. The fact that goods for Rs.7.90 crores were purchased by the assessee has been accepted by the CIT (A). In spite thereof insistence upon bringing the case within Section 194C was an improper exercise of power.

6. The learned Tribunal has set aside the order passed by the CIT (Appeals). They not only have taken a possible view but they have really done justice to the assessee. The appeal is, therefore, dismissed with costs assessed at Rs.10,000/-(Ten Thousand).

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