GST rate on steel scrap may come down in the upcoming GST Council meet

The 45th GST Council meeting scheduled for Friday, 17th September 2021, is expected to make major announcements. One of them is a possible rate cut on steel scrap from 18% to 5%. 

The GST authorities picked on many steel manufacturers, enforcing actions on them. It was due to the fake invoicing carried out by the scrap dealers who supply steel scrap to these manufacturers. Their input tax credit was blocked, leading to disruption in the supply chain.

The fake invoicing has been hard to crack for the authorities. Those involved in the fake invoicing scam develop a series of invoices. These seem issued by suppliers across India and are also falsely set up. A supply chain is established involving rolling mills and iron and steel manufacturers in India. The initiator of the chain will go missing or be wiped off once a significant supply gets completed. 

Therefore, several state finance ministers have proposed a rate rationalisation for steel scrap to reduce the tax evasion menace. Punjab Finance Minister Manpreet Singh Badal and Himachal Pradesh Chief Minister Jai Ram Thakur have made representations to Union Finance Minister Nirmala Sitharaman.

Accordingly, they have suggested that the GST rate be reduced from 18% to 5%. It can act as an incentive for the taxpayers to remain compliant with GST. The cost to benefit is low, and the government can, in turn, expect an additional annual revenue of Rs.5,000 crore through this move. It will also provide relief to the industry, increasing the demand for scrap. 

The Punjab FM suggested an alternative measure. The duty on steel scrap may be deposited via the reverse charge mechanism. However, this may impact such suppliers who obtain scrap as part of the manufacturing process. 

Further, some finance ministers have stated that the courts have started recognising and providing relief from stringent compliance measures to the taxpayers under GST. 

The Punjab FM further added that the extent of fraud found in Ludhiana and other cities has grown rampant compared to the expected compliance rate. He highlighted that the GST authorities are tracking down the manufacturers who consume such scrap. 

They were held responsible even though they are bonafide buyers of scrap due to the incorrect input tax credit claims. It is neither legal nor fair to pull someone up unless they shake hands with the wrong-doer. He further pointed out that too many checks at GST registration, such as PAN/Aadhaar authentication. These do not contribute towards curbing the fake invoicing deals.

The GST rates on various scrap items such as rubber, plastic, wood, etc., have already been reduced to 5% from 18%. The relief is needed to curb the fake invoicing and fake input tax credit menace prevalent in the steel industry. 

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For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in