The Madras High Court has held that empty liquor bottles cannot be included in
scrap, and TCS is not applicable.

The bench of Justice C. Saravanan has observed that the petitioner is neither the
owner of the bottle nor generates scrap as is contemplated under the Income Tax
Act, 1961. The activity of opening and uncorking is not a “mechanical working of
material.” Therefore, the invocation of Sections 206C, 206CC, and 206CCA of the
Income Tax Act, 1961, was wholly misplaced and unwarranted under the
circumstances against the petitioner for the alleged failure to collect tax at 1% on
99% of the license fee payable to the government and 1% retained as agency

The petitioner/assessee sells liquor in its retail shops as per the Tamil Nadu Liquor
Retail Vending (in Shops and Bars) Rules, 2003. The assessee has challenged the
order by which it was held that the assessee ought to have collected “Tax
Collected at Source” (TCS) on the amounts tendered by the successful bar
licensee towards tax from the sale of empty bottles by treating the sale of bottles
as scrap.

The issue raised was whether the petitioner was required to collect TCS from the
bar licensees, who have been licensed to run bars under the license issued to them
under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003, under
Section 206C of the Income Tax Act, 1961.

The assessee contended that it is not engaged in the manufacture or generation of
waste from the mechanical working of materials from which scrap has arisen. The
petitioner is merely selling liquor in its retail shops. The empty liquor bottles left by
the consumers are in the bar and not the property of the petitioner, and in any
event, they were not sold by it. It would not come under the purview of the
definition of “scrap” in Explanation to Section 206C of the Income Tax Act, 1961.


The assessee urged that, after effecting sales, the petitioner has no right over the
liquor bottles. The petitioner has merely given the license to the independent bar
contractors through a tender to collect the empty bottles left by consumers in the
bars, which are actually sold by them on their own rights and not on behalf of the

The department contended that there is no condition stipulated in the G.O. dated
March 29, 2013, directing TASMAC to collect 99% of the license fee, favouring the
state government separately. Therefore, it is the responsibility of TASMAC only to
collect the entire tender amount and remit it to the government. The liability to
collect TCS on the entire license rests on TASMAC.
The court held that there is neither a “manufacture” nor a generation of “scrap”
from “mechanical working of materials,” and the liability under Section 206C of the
Income Tax Act, 1961, is not attracted.

Counsel For Petitioner: R.Vijayaraghavan
Counsel For Respondent: Dr.B.Ramaswamy

Case Title: M/s.Tamil Nadu State Marketing Corporation Ltd. Versus DCIT
Citation: 2023 LiveLaw (Mad) 413
Case No.: W.M.P.Nos.18539, 18685, 18774, 19050, 19048, 19070, 19081 &
19516 of 2023

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