Reverse charge means the liability to pay tax is on the
recipient of supply of goods or services
The
scrap steel industry, which sources its raw materials mostly from unorganised
scrap dealers, has sought rationalisation in GST structure through a ‘reverse
charge mechanism’ where the liability to pay tax would be on manufacturers.
All India
Induction Furnaces Association (AIIFA), a body of scrap steel manufacturers, on
Thursday urged the GST Council to consider their demands for bringing the steel
scrap recycling industry under a reverse charge mechanism in line with the
transport services.
Read | What
changes to GST laws means
Under the
Goods and Services Tax (GST) system, generally, the supplier of goods and
services is liable to pay tax. Reverse charge means the liability to pay tax is
on the recipient of the supply of goods or services.
Sudhir Goyal, a
member of All India Induction Furnaces Association, said, “a large number of
scrap dealers have been found guilty of claiming fraudulent input tax credit.
Tax authorities ultimately catch manufacturers.”
Goyal said the
reverse charge mechanism would help solve the issue of fraudulent input tax
credit claims by scrap dealers. GST is levied at a rate of 18 per cent on steel
scrap.
AIIFA
recommendations to the GST council include exempting the supply of metal scrap
from GST when it is sold by various scrap dealers, except for the last leg of
the chain when it is sold to manufacturers. In that case, the GST would be
collected from the manufacturers through a reverse charge mechanism, where the
manufacturers would be responsible for paying the tax rather than the scrap
dealers.
The
association has also suggested the introduction of separate entries in the GST
schedules and HSN (Harmonised System of Nomenclature) codes for the old scrap
and new scrap.
Old scrap is
already taxed at the time of the original product's sale and the reverse
logistics involves only collection and reuse. New scrap, however, is generated
from a definite economic activity. Therefore, the two types of scrap should not
be treated equally from a tax perspective, the association said in a statement.
Union Steel
Minister Jyotiraditya Scindia earlier this month said around 22 per cent of
steel in India is produced through recycling. The government has set a target
to increase the share of steel produced through recycling to 50 per cent in
overall steel production in the country.
“The current
GST system is resulting in a lot of litigation and making doing business very
difficult. Reverse charge mechanism will lead to increase in revenue to the
government as it will help plug leakages and it will save us from unnecessary
litigation,” said Mohinder Gupta, President of Induction Furnace Association
Mandi Gobindgarh, Punjab.
Danish Goyal,
AGM (Sales & Marketing) of Punjab-based Madhav KRG Limited, said a lot of
local scrap dealers bill scrap on fraudulent GST bills, collecting GST from
manufacturers along with the material bill, but not depositing the funds with
the department.
There is currently no mechanism available on the
GST portal to verify the deposit of GST or the authenticity of bills. As a
result, frequent raids and notices from tax authorities are sent to
manufacturers seeking details of scrap purchased from scrap dealers, Goyal
said.