The 54th Goods and Services Tax Council meeting held on Sept 9, 2024, has recommended the introduction of the Reverse Charge Mechanism on metal scrap. This could have a substantial impact on businesses in the scrap industry.
Usually, the seller charges the buyer a tax. However, under the new provision of RCM, the buyer will be liable to pay the tax directly to the government.
The Council stated that if a business is selling metal scrap and is not registered for GST, it will not need to charge buyer for a tax. The buyer on the hand who is registered for GST, will then pay the tax directly to the government.
The provision also noted that an unregistered metal scrap seller, with sales exceeding a certain limit, will need to register for GST. After registration, the same RCM rules mentioned above will apply.
The GST Council has also recommended a 2% Tax Deducted at Source (TDS) on the supply of metal scrap by registered persons in the business to business supply of scrap.
Impact
The new introduction has a positive impact on metal scrap recyclers like Gravita India and Pondy Oxide & Chemicals, who were actually lobbying for this policy to come into place.
As per Emkay Research, the introduction of the RCM will help eliminate the cost advantage the unorganised lead recycling market was getting over the organised players through GST evasion. The responsibility of deducting and depositing of GST has now been transferred to the buyer of scrap.
Market expert Rakesh Arora stated that the unorganised and small recycling companies were not paying GST to the small-time scrap sellers. "The rules now say that the scrap buyer has to deposit GST. This means that even smaller scrap buyers are now obligated to pay GST, putting them on par with large buyers", he said.
This development is significantly beneficial for Gravita India, as per Emkay. The brokerage also adds how the mechanism will result in a completely transparent system over time, allowing companies to now tap into a larger market segment for procurement of scrap.
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