Published on September 10, 2024

The Goods and Services Tax (GST) Council of India has proposed the introduction of a Reverse Charge Mechanism (RCM) for GST on metal scrap transactions. This proposal was one of the key recommendations made during the 54th GST Council meeting held on September 9, 2024.

Understanding the Reverse Charge Mechanism (RCM)

Under the current GST framework, the responsibility of collecting and remitting GST lies with the seller. However, the proposed RCM shifts this responsibility to the buyer. Specifically, when a registered entity purchases metal scrap from an unregistered supplier, the buyer will be liable to pay the GST directly to the government.

Key Provisions of the Proposal

1. Liability Shift: The primary change under the RCM is that the buyer, rather than the seller, will be responsible for paying the GST on metal scrap transactions. This applies even if the supplier is below the GST registration threshold.
2. Impact on Unregistered Suppliers: Unregistered metal scrap suppliers will not need to charge buyers GST. However, if their sales exceed a certain limit, they must register for GST, at which point the RCM rules will still apply.
3. Tax Deducted at Source (TDS): The Council has also recommended a 2% TDS on the supply of metal scrap in business-to-business (B2B) transactions. This measure aims to ensure tax compliance and broaden the tax base within the sector.

Implications for the Industry

The introduction of RCM for metal scrap is expected to have several implications:

• For Buyers: Registered buyers will now pay the government GST directly. This could streamline tax compliance for larger entities but may also increase their administrative burden.
• For Sellers: Smaller, unregistered sellers may benefit from reduced compliance requirements. However, they must comply with the new RCM rules once they cross the GST registration threshold.
• For the Industry: The proposal aims to address non-compliance and tax evasion issues within the informal sector of the metal scrap industry. By shifting the tax liability to buyers, the government hopes to ensure that all transactions are taxed appropriately.

Conclusion

The proposed RCM for GST on metal scrap represents a significant shift in tax policy aimed at improving compliance and addressing challenges within the industry. While it may increase the administrative burden for registered buyers, it also offers a streamlined tax collection and compliance approach. As the proposal moves forward, its impact on the industry will be closely monitored by stakeholders and policymakers alike.