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CMA Final · Direct Tax Laws and International Taxation · Collection, Recovery and Refund of Tax

A resident buyer, Kaveri Steels Pvt Ltd, purchases iron ore from a seller. It furnishes a written declaration that the ore will be used for manufacturing and not for trading. As per the provisions on collection of tax at source, what is the consequence, and what must the seller do?

The seller does not collect tax, and must deliver a copy of the declaration to the specified Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner by the seventh day of the following month. The exemption applies because the ore is for manufacturing, not trading.

  1. AThe seller collects TCS at a reduced rate of 1%, with no further action
  2. BThe seller does not collect tax and delivers a copy of the declaration to the specified Commissioner by the seventh day of the following monthCorrect
  3. CThe seller collects TCS but the buyer can claim refund of it later
  4. DThe seller does not collect tax and need not send the declaration to any authority

Explanation

Section 394(2) exempts collection on Sl. Nos. 1 to 5 (iron ore is in No. 5) for a resident buyer who gives a declaration for manufacturing, processing, producing or power generation, not for trading. Under 394(3), the seller must deliver a copy to the Commissioner by the 7th of the next month. The last option omits that duty.

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