GST on Metal Scrap Business: A
Detailed Understanding of Purchases from Registered and Unregistered Dealers
Under GST
By Yogesh Verma (CS/LLB) / 2 min read / GST Article
Introduction: In the metal scrap industry, where materials such as iron,
copper, aluminum, and other metals are sold and traded, compliance with the
Goods and Services Tax (GST) is essential. Recent notifications have brought
clarity and guidance to registered buyers and suppliers of metal scrap. These
changes impact businesses buying from both registered and unregistered dealers,
ensuring that tax obligations are clearly defined and executed correctly.
This article will explore the recent GST notifications
governing the purchase of metal scrap, offering an easy-to-understand breakdown
of the rules for registered and unregistered dealers.
Purchase of Metal Scrap from
Registered Dealers
As per Notification No. 25/2024-Central Tax dated 09.10.2024,
the government has introduced specific provisions for the purchase of metal
scrap by registered businesses. Under this notification, if a registered person
purchases metal scrap classified under Chapters 72 to 81 of the First Schedule
of the Customs Tariff Act, 1975, from another registered dealer, tax needs to
be deducted at the source (TDS). Here's a breakdown of the key rules:
Tax Deduction at Source (TDS)
Requirement
1.
Applicability
of TDS:
o Any registered person receiving metal scrap supplies from
another registered dealer is required to deduct 1% tax from the total
payment. This is mandatory when the total contract value for such supplies
exceeds ₹2,50,000.
2.
Conditions
for TDS Deduction:
o No tax deduction is required if the supplier's location
and the place of supply are in different states or union territories.
This condition ensures that TDS applies only to intra-state transactions,
simplifying cross-border transactions within India.
3.
Value of
Supply for TDS:
o When calculating the value of supply for TDS purposes, it is
crucial to exclude taxes such as central tax, state tax, union territory tax,
integrated tax, and cess from the invoice. This ensures that TDS is applied
only to the taxable value, making compliance easier for businesses.
Procedure for TDS Payment
1.
Timeline
for Payment:
o The tax deducted at the source (TDS) must be deposited with
the government within ten days after the end of the month in which the
deduction is made. This short window ensures timely tax remittance, reducing
the risk of non-compliance or penalties.
2.
Return
Filing:
o Registered buyers required to deduct tax must file FORM
GSTR-7, the return form specifically designed for those deducting TDS. This
form must be submitted electronically through the GST portal.
3.
Deductee's
Credit Claim:
o The supplier (deductee) from whom the TDS was deducted can
claim the credit of this amount in their electronic cash ledger. This
credit will be reflected when the buyer files their TDS return (FORM GSTR-7)
and allows the deductee to offset the deducted tax against future liabilities.
4.
Certificate
for TDS:
o Upon filing of FORM GSTR-7, the supplier will receive a TDS
certificate (in FORM GSTR-7A) electronically through the GST portal. This
certificate serves as proof of tax deduction and is vital for the deductee's
records and tax filings.
Purchase of Metal Scrap from
Unregistered Dealers
The purchase of metal scrap from unregistered dealers
introduces additional complexities under GST. As per Notification No.
06/2024-Central Tax (Rate) dated 08.10.2024, specific reverse charge
provisions apply.
Reverse Charge Mechanism (RCM) for
Unregistered Dealers
1.
Applicability
of RCM:
o When a registered person purchases metal scrap under
Chapters 72 to 81 of the Customs Tariff Act, 1975, from an unregistered dealer,
the registered buyer is required to pay tax under the reverse charge
mechanism (RCM).
o This means that instead of the seller collecting and
remitting GST, the buyer assumes the responsibility of paying GST directly to
the government.
2.
Input Tax
Credit (ITC):
o The registered buyer, upon paying the tax under RCM, is
entitled to claim input tax credit (ITC). This provision allows the
buyer to offset the tax paid on metal scrap against future GST liabilities,
promoting cash flow efficiency and ensuring no additional tax burden is
incurred.
3.
Compliance
for Unregistered Dealer Transactions:
o Since unregistered dealers are not required to file GST
returns or charge GST on sales, the buyer must take extra care to properly
document these transactions. The registered buyer must report these purchases
in their GSTR-1 and GSTR-3B returns, specifying the value of the
purchase and the tax paid under RCM.
Practical Implications for
Businesses in Metal Scrap
1. Tax Compliance and Timely Filing
Businesses dealing with metal scrap must ensure strict
compliance with the GST notifications. For registered dealers, TDS must be
deducted where applicable, and tax remittance must be made on time. Any delays
in filing FORM GSTR-7 or in making TDS payments could lead to interest,
penalties, or other legal consequences. Therefore, it is advisable for
businesses to maintain robust accounting systems and ensure timely reporting of
transactions.
2. Simplifying Transactions with
Unregistered Dealers
While dealing with unregistered dealers may seem complicated
due to the reverse charge mechanism, the benefit of claiming ITC on these
transactions reduces the financial burden. It allows registered buyers to
effectively manage their tax liabilities and ensures that the additional tax
paid is recoverable.
3. Impact on Small and Medium-Sized
Enterprises (SMEs)
The rules laid out in the notifications can significantly
affect small and medium-sized enterprises (SMEs) involved in the metal scrap
industry. SMEs must ensure they are aware of when TDS applies and ensure
compliance with RCM for unregistered dealers. While the ITC helps to ease the
tax burden, SMEs must still be prepared for the additional administrative tasks
associated with these transactions.
4. Documentation and Record Keeping
For all businesses, documentation is key to avoiding
disputes and ensuring smooth compliance. Tax deductions at the source, reverse
charge payments, and input tax credit claims should all be meticulously
recorded and reported in GST returns. FORM GSTR-7 and FORM GSTR-7A certificates
serve as essential documents to substantiate claims made during tax
assessments.
Conclusion
The notifications introduced in October 2024 aim to
streamline tax deductions and reverse charge mechanisms in the metal scrap
industry, ensuring transparency and clarity for both registered and
unregistered dealers. For registered buyers, deducting tax at the source (TDS)
simplifies compliance when purchasing from other registered dealers. On the
other hand, purchases from unregistered dealers invoke the reverse charge
mechanism (RCM), allowing buyers to take charge of the tax process and claim
input tax credit (ITC) accordingly.
To maintain compliance and make the most of the provisions,
businesses must stay up to date with their GST filings and accurately account
for all transactions. By following the rules outlined in Notification No.
25/2024-Central Tax and Notification No. 06/2024-Central Tax (Rate),
metal scrap traders can ensure they meet all GST obligations while optimizing
their tax liabilities.
Understanding these changes and their practical impact on
your business can help you navigate the GST landscape with greater confidence,
leading to smoother operations and improved financial management in the metal
scrap industry.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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