1. Introduction

Provisions of Section 206C(1H) were introduced in the Finance Bill, 2020 with one of the intention to track the transactions, reconciliations of sales and purchases. To restrict the burden of compliance on the small and medium entities, the said provision has been made applicable enacting the Section 206C(IH) the Finance Act, 2020 wherein every seller whose total Turnover or Gross Sales or Gross Receipts exceeds ` 10 crores in the preceding previous financial year and has received any amount as consideration for sale of any goods of the value exceeding ` 50 lakhs during the current financial year i.e. in the financial year 2020-21 from any party. Such assessee shall collect 0.1% (reduced to 0.075% for the period upto 31st March, 2021) of the sales consideration from the buyer and deposit the same with the Government within the specified time prescribed and file the TCS Return within the time limit specified. The said provisions has been enacted in the Finance Act, 2020 and was to be effective and applicable from 1st April, 2020 onwards. However, due to Corona pandemic, the applicability and implementation of this Section has been deferred and made applicable from 1st October, 2020. It’s now applicable despite of representations made by several business organisations and professional institutions.

2. Legal Provision

The provision of the Section 206C(1H) (now referred to as the “said section”) reads as under:

Section 206C(1H): Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent”, the words “one per cent” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation.—For the purposes of this sub-section,—

(a) “buyer” means a person who purchases any goods, but does not include,—

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(1-I) If any difficulty arises in giving effect to the provisions of sub-section (1G) or sub-section (1H), the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(1J) Every guideline issued by the Board under sub-section (1-I) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person liable to collect the sum.]

The implication and applicability of the said Section has raised certain doubts and created certain issues on it’s practical implementation wherein an effort has been made to simplify it’s understanding, implications, applicability and to ensure correct compliance.

3. Sale of Goods

The enabling provisions has already defined the category of the persons covered as “seller” as well as the “buyer” but the levy is on the collection of “sale proceeds” and it says as any sales. However, the term “sales” have neither been defined under the enacted provision nor in the Income Tax Act, 1961, making it more difficult to arrive at the exact term of “sales” and for the said purpose, we have to refer to the definition of sale under the Sale of Goods Act, 1930 which will be the correct law to understand the term “sales”. The term “goods’ has been defined in Section 2(7) of Sale of Goods Act, 1930 as to include sale of all types of movable property and the said Section 2(7) further reads as follows:

“Every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale will be considered goods”.

This means that the levy covers sale of movable property. Accordingly, when we refer to this Act, it means all types of transactions of sale of movable property are covered for the purpose of levy and collection of tax. But it excludes actionable claims and money. The term actionable claims mean those claims which are eligible to be enforced or initiated by a suit or legal action.

By virtue of this, the actionable claims and money will be exempted from the levy being excluded from the term goods under the Sale of Goods Act, 1930. The winnings from lottery will be excluded as the TDS is required to be deducted under Section 194B and winning of lotteries, prize money, horse races etc. are also covered for tax deduction under Section 194BB of the Income Tax Act, 1961 and as per the enacted provision if any such transaction is covered for tax deduction or collection under any other provisions of the Income Tax Act, then this levy would not apply.

The sale of immovable property is also not covered by the term goods and hence would not be covered by TCS provisions. At the same time, the transactions for purchase of immovable property, renting of immovable property etc are already covered by Section 194IA and Section 194IB respectively they too shall be exempted from the said levy.

The shares and securities are goods but by virtue of exemption provided by Circular No. 17/2020 dated 29th September, 2020, the transactions related to purchase and sale of shares through recognised Stock Exchanges no TCS is required to be collected. However, any transaction of sale of shares other than through recognised exchange may be subjected to TCS. The exemption from TCS for sale of shares should have been granted generally.

The term goods include tangible as well as intangible goods. Electricity though is intangible goods and sale of it might be subjected to TCS but sale of Electricity, Electricity bonds and certificates as notified and registered under CERC Act are excluded by virtue of clarification given in Circular 17/2020 dated 29th September, 2020 from the said levy, which too will be a greater relief.

One another question may come whether TCS would apply to the sale of software. Since the sale of branded software is now taxable as goods as per the judgements of the various courts of law, the new levy would be applicable. However, it has been noted that generally the licensed software is being given for use for a specific period and time and thereafter the license fee is required to be paid for the renewal for another term. In such instances it would be the transaction for lease or license which is already covered by Section 194IB of the Income Tax Act, 1961 and hence may not be covered by the newly enacted provision. In any transaction of software, when it is treated as sale then it would be considered as sale of goods and subjected to TCS and in case of licence of software to use for specific period it will be subject to TDS.

4. Issues

1. TCS is applicable on sale of goods and not on the sale of services or labour. Further it is not applicable to lease or renting of goods being not a sale as defined in sale of Goods Act, 1930.

2. Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed ` 10 crore during the financial year immediately preceding the financial year, shall be liable to collect such TCS. The applicability for each of the financial year based on such reading can be as follows:

Financial Year	Gross Turnover/ Gross Receipts/ Total Sales	Section 206(1H)
2019-20	Less Than 10 Crores	Provisions not Applicable in Financial Year 2020-21
2020-21	Exceeds ` 10 crores	Provisions not Applicable in Financial Year 2020-21 but Applicable in Financial Year 2021-22
2021-22	Less Than ` 10 crores	Provisions Applicable in Financial Year 2021-22 but Not Applicable in Financial Year 2022-23

3. TCS shall be collected from a buyer from whom consideration of more than ` 50 lakh will be received in the previous year. This can be further analysed for it’s applicability and amount on which TCS has to be deducted as under:

Financial Year	Sales with a buyer in FY	Total Receivable from such buyer as on 1st April 2020	Receipts from 1st April 2020 to 30th September 2020 from such buyer	Receipts from 1st October to 31st March, 2021 from such buyer	TCS Deduction
2020-21	65 Lakhs before 30th September, 2020 50 Lakhs from 1st October, 2020	155 Lakhs	75 Lakhs	150 Lakhs	On Rs 150 Lakhs @ 0.075% i.e. the sums received from 1st October, 2020 onwards
2020-21	65 Lakhs before 30th September, 2020 50 Lakhs from 1st October, 2020	155 Lakhs	40 Lakhs	150 Lakhs	On Rs 140 Lakhs @ 0.075%. Total receipts during the year Rs 190 lakhs less basic exemption ` 50 Lacs.

4. The supplier may have sold the goods in any of the earlier financial year but TCS has to be collected on amount received on or after 1st October, 2020 if the amount received exceeds ` 50 Lakhs and this receipt of sum is to be accounted from 1st April, 2020 onwards. Once the liability of TCS accrues, the other relevant compliance formalities needs to be completed. This will add up to an another compliance related to reconciliation of amount of TCS as per 26AS with accounts. Further, in the instances, where business is closed or discontinued and TCS may result into refund of tax. In case of death of person and payments of the outstanding dues may be made by the legal heir then in such cases issue will arise as to in whose PAN, TCS is to be collected and claimed. The CBDT should notify such instances and exempt TCS in such cases the buyer of goods and the payer of such purchase proceeds are different entities.

5. The main requirement of the provision is to recover the TCS at the time of receipt of sale consideration from the buyer. The same cannot be charged in the Invoice as is applicable in the other provisions of TCS. This will lead to enormous compliance burden and keeping the records updated each time to ensure that the Debit Note for recovery of TCS is raised properly and also that the amount in Debit Note is timely recovered from the buyer. In the absence or delay of any of such document, the chances of recovering the money for the TCS would be low and may lead to loss to the Seller. Further having different method of collecting TCS in different section leads to more confusion rather than simplification which is also against the main policy of the Government.

In respect of receipt of sale consideration for sale of goods prior to the notified date the difficulty will arise for collection of tax as it was not included at the time of sale contract. The procedure for collection of tax at the time of receipt of sale consideration is not prescribed. Many companies follow SAP system of accounting and in absence of proper source document it is not possible to generate payment advice. This provision needs re-consideration and need to exempt receipt of sale consideration for transactions from TCS prior to the applicable date of 1st October, 2020.

Further guidelines and instructions are required to be issued by CBDT for mechanism of collection to allow sellers to collect the TCS in invoice subject to the actual payment at the time of receipt of sale consideration. Further, the clarification should also include that in the case of receipt of sale consideration in part then to proportionately discharge of liability. The necessary representation in this regard is required to be made.

6. The rate of TCS shall be the prevailing rate applicable in the Financial Year in which the actual receipt of the sales proceeds and not the rate applicable at the time of sale of goods. For example, if the seller has sold the goods to the buyer in the financial year 2020-21 wherein the rate of TCS is 0.075% due to the granted concessional rate on account of Corona Pandemic Notification, but if the sale proceeds are received in financial year 2021-22, then the TCS rate applicable will be @ 1%. This would also become difficult to explain to the buyer. The rate of TCS should be made as applicable on the date of sale of goods and accordingly necessary clarification is required to be issued by CBDT.

7. The buyer will be eligible to claim the credit for the TCS in which he has made the payment for the goods as the applicability of the said provision is at the time of making the payment to the seller. TCS claim will be in a year where the transaction of sale may actually have not happened. Further, if the seller has collected the TCS and have failed to deposit the same the buyer may not be able to claim the credit for the TCS as it may not be appear in Form 26AS. This will again call for additional legal litigations on the part of buyer to get the credit of TCS. The reconciliation of amount of TCS paid and entries appearing in Form 26AS each year is an additional compliance.

8. The provision is applicable only on the business entities and not the professionals.

9. TCS is also not applicable in case of export or import of goods. Similarly, Central Government may notify persons in future, subject to conditions contained in such notification, who shall not be liable to collect such TCS. Any Notification issued by the Central Government shall be binding on all the sellers and authorities. The Central Government has also been granted powers to issue any such Notification to remove practical difficulties faced by the assesses. High Seas Sales and Sale of Goods from bonded Ware house is considered as import of goods under the Customs Act. The clarification is required to be issued in order to treat such transactions as import under the Income Tax Act also for the purpose of TCS, otherwise the levy would be applicable.

10. No such tax is required to be collected, if the seller is liable to collect TCS under other provision of section 206C or the buyer is liable to deduct TDS under any other provision of the Income Tax Act and has deducted such amount under the applicable provision. We are yet to see any provision of TDS applicable to purchase of any goods under the Income tax Act. Practically, it will apply to all transaction of sale of goods except sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of less than ` 10 Lakh. Any sale of vehicle of value of ` 10 Lakh or more to a buyer is subjected to TCS under section 206C(1F). However, in the case of receipt of sale consideration by the vehicle manufacturers during the previous year exceeds ` 50 Lakhs, irrespective of the transaction sale value of each vehicle, this transaction will be subject to TCS under section 206C(IH) and not under section 206C (1F) as both the transactions are separate and distinct in case of persons involved in the transaction, despite of the common person being the car dealer. Receipt of sale consideration from a car dealer by the car manufacturer would be subjected to TCS under section 206C(1H), even if such sales are not subjected to TCS under section 206C(1F).

11. TCS has to be collected on amount including GST which has been clarified vide Circular no. 17/2020 dated 29th September, 2020. However, tax amount is never considered as price of goods. The SC in case of Anand Swarup Mahesh Kumar v. The Commissioner Of Sales Tax on 15 September, 1980, 1981 AIR 440, 1981 SCR (1) 707 under the sales tax law held that;-

”from the observations made in the decisions referred to above, it follows that where a dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, such tax does not form part of the consideration for purposes of levy of tax on sales or purchases but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration when he includes it in the price and realizes the same from the purchaser”

Accordingly, the amount of GST collected is under the authority of the law and should not form part of sale consideration for the purpose of TCS . The Board has also issued circular no. 23/2017 and has clarified that if GST on services has been separately indicated in the invoice, then for the purpose of TDS the amount of tax does not form part of rent and as such TDS will apply on rent amount excluding tax. The recent Circular No. 17/2020 dated 29th September, 2020, requires reconsideration as there cannot be a tax on tax and no one earns any income on collection or payment of any tax and the tax is collected as an agent of the Government accordingly it should be excluded from TCS.

12. The threshold limit of ` 50 Lakh shall be computed from 1st April, 2020 with respect to the previous year for calculation of receipt of sale consideration for triggering TCS under the said provision. Hence, if a person being seller has already received ` 50 Lakh or more up to 30th September 2020 from a buyer, the TCS under the provision shall apply on all receipt of sale consideration during the previous year, received on or after 1st October 2020, from such buyer. One question may arise here that if the buyer has given the Advance for purchase of goods but due to some reason the transaction does not get completed and the Advance given by the buyer is required to be refunded. There has been no clarification given about the adjustments of TCS or cancellation of TCS. In such cases the practical view is required to be taken about it’s applicability and implication as there is no liability on the part of the seller to collect and deposit TCS in such cases. However, if the TCS has been collected by the seller and deposited in the Government Treasury, even though the transaction is not completed, the buyer will be eligible to claim the credit for such TCS but will have to go through various other compliances and clarifications to the Assessing Officer under the faceless compliance mechanism.

13. If the assessee buys and sells the good to the same person and there is no actual receipt of money from such parties, then in such cases a question arises as to when the TCS is required to be collected and deposited. In the absence of any clarification by CBDT, the TCS should be deposited at the time when the value for the purchase consideration is adjusted against the sale consideration in books of accounts. The mechanism needs to be provided in such cases by CBDT for such transactions.

14. In case where a person is a regular buyer and seller of petrol from the petrol pumps, unless he is having an credit account which is required to be settled periodically it would be very difficult for such seller to keep the track of receipts of sale proceeds on a regular basis. Since the petrol dealer is not exempted from the compliance of this levy, recovery of TCS and compliance of the new levy will be a challenging task.

15. In case of trade discounts or quantitative discounts which are given by the supplier to the buyer, If the same are given in the Invoice itself the levy shall be on the net amounts invoiced. But subsequently if the discounts etc. are given which are based on the turnover or target based sale discounts, then in such cases also the money paid by the buyer to the seller will be lesser to the extent of discount amount, the TCS will not be required to be collected and deposited on the discount amount as there is no actual receipt of consideration. In the circular it is stated that no adjustment shall be made for discount or goods return requires reconsideration as the TCS is applicable at the time of payment of sale consideration. When goods are returned there is no payment for any sale consideration as such TCS shall not be applicable. Likewise, in case of discount after issue of invoices by way of credit notes no payment is made as such the TCS shall not be practically applicable. Further in case of pre-agreed discounts at the time of sale, the sale price stated in the invoice is always subject to subsequent discount and when it is given it reduces the original sale price of goods and in GST and earlier sales tax laws it was always treated as reduction in sale price. Necessary clarification is required to be issued by the CBDT in this regard.

Conclusion

In this article an attempt is made to discuss certain issues relating to TCS on sale of goods which requires further debate and necessary clarification. The Government does not intend any revenue collection from TCS and is introduced for checks and control. The representations required before the Government by all trade and professional bodies and the Government should take liberal view to it and simplify the burden of TCS which will improve ease of business.