Detailed Clarification on Notification No. 25/2024-Central Tax- Applicability of Deduction TDS On Registered Persons Involved In The Supply Of Metal Scrap.

Introduction:

On 9th October 2024, the Ministry of Finance, Department of Revenue, issued Notification No. 25/2024-Central Tax (G.S.R. 629(E)), further amending the previously issued Notification No. 50/2018-Central Tax dated 13th September 2018. This notification pertains to the provisions regarding Tax Deduction at Source (TDS) under the Central Goods and Services Tax (CGST) Act, 2017. The recent amendment introduces changes regarding the applicability of TDS provisions on registered persons involved in the supply of metal scrap.

Key Provisions of the Notification:

The notification is issued under the powers conferred by Section 51 of the CGST Act, 2017, which deals with the mechanism of Tax Deduction at Source (TDS), and sub-section (3) of section 1 of the CGST Act, 2017, which empowers the Central Government to appoint the date for the applicability of certain provisions.

This notification brings two significant changes to Notification No. 50/2018-Central Tax:

1. Amendment to Clause (c):

A new clause (d) has been added after clause (c) and before the first proviso. This clause extends the scope of TDS to include:

“(d) any registered person receiving supplies of metal scrap falling under Chapters 72 to 81 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), from other registered persons”

Key Points:

• This clause makes TDS applicable to registered persons involved in receiving supplies of metal scrap.
• The metal scrap refers to products falling under Chapters 72 to 81 of the First Schedule to the Customs Tariff Act, 1975. These chapters cover various metals and their scraps, such as iron, steel, copper, nickel, aluminum, lead, zinc, tin, and other base metals.
• The amendment ensures that registered persons involved in the purchase of metal scrap from other registered persons will now be liable to deduct TDS under Section 51 of the CGST Act, 2017.

2. Substitution of the Third Proviso:

The third proviso of the notification has been substituted with the following:

“Provided also that nothing in this notification shall apply to the supply of goods or services or both, which takes place between one person to another person specified under clauses (a), (b), (c) and (d) of 

sub-section (1) of Section 51 of the said Act, except the person referred to in clause (d) of this notification.”

Explanation of the Change:

• This substitution clarifies that the TDS provisions under Section 51 of the CGST Act shall not apply to the supply of goods or services between certain categories of persons specified in clauses (a), (b), (c), and (d) of sub-section (1) of Section 51, except for those specified in clause (d).
• This means that while supplies between specified persons (such as government departments, local authorities, etc.) remain exempt from TDS, this exemption does not apply to registered persons receiving metal scrap (as specified in the new clause (d)).
• Therefore, metal scrap transactions between registered persons are now specifically included under the TDS provisions, while other exempt categories of transactions remain unaffected.

Effective Date:

The notification clearly states that the amendments will come into effect from the 10th of October 2024. This means that the provisions of this notification must be complied with for all eligible transactions on or after this date.

Impact of the Notification:

1. Widening the Scope of TDS:
   By introducing metal scrap under Chapters 72 to 81 of the Customs Tariff Act, 1975, this notification broadens the scope of TDS under GST. Registered persons dealing in the supply and purchase of metal scrap will now need to adhere to the TDS provisions outlined in Section 51.
2. Compliance for Registered Dealers:
   Registered dealers in the metal scrap industry must now ensure compliance with TDS provisions on their purchases. They will be required to deduct TDS when receiving supplies from other registered persons, and they should make necessary arrangements in their accounting and reporting systems to accommodate this change.
3. No Exemption for Metal Scrap Supplies:
   The proviso substitution clarifies that while certain supplies remain exempt from TDS between specified persons, supplies involving metal scrap are not eligible for such exemption. This ensures that the metal scrap industry is brought under the purview of TDS compliance.
4. Administrative Procedures:
   Registered persons who fall under the purview of this amendment will need to ensure timely and accurate deduction and deposit of TDS. Additionally, they will need to file TDS returns as per the existing provisions of the CGST Act.

Key Highlights of the Notification:

1. Applicability of TDS:
   • From 10th October 2024, a TDS of 2% is required to be deducted by the recipient (buyer) of goods, under GST, when purchasing metal scrap.
   • Condition: The taxable value of the supply must exceed ₹2,50,000 per transaction.
   • TDS Rate Breakdown:
     • CGST = 1%
     • SGST = 1% (for intra-state transactions)
     • IGST = 2% (for inter-state transactions)

TDS on Metal Scrap Purchases

The new TDS rule specifically applies to the purchase of metal scrap. The TDS rate of 2% will be calculated on the taxable value of the metal scrap being purchased, not on the total invoice value (which includes GST).

Important Note:

• TDS under this rule is only applicable to transactions where the taxable value exceeds ₹2,50,000 per transaction.

Chapters of the Customs Tariff Act to Which This Rule Applies:

The new TDS rule is applicable to metal scraps falling under Chapters 72 to 81 of the First Schedule to the Customs Tariff Act, 1975. These chapters include the following materials:

• Chapter 72 - Iron and Steel
• Chapter 73 - Articles of Iron and Steel
• Chapter 74 - Copper and Articles thereof
• Chapter 75 - Nickel and Articles thereof
• Chapter 76 - Aluminum and Articles thereof
• Chapter 78 - Lead and Articles thereof
• Chapter 79 - Zinc and Articles thereof
• Chapter 80 - Tin and Articles thereof
• Chapter 81 - Other Base Metals; Cermets; Articles thereof

This means that buyers purchasing any metal scrap categorized under these chapters must deduct GST TDS on qualifying transactions.

Separate GST Registration for TDS Deduction:

To deduct GST TDS, the buyer of the metal scrap must obtain a separate GST registration for TDS deduction. The form for this registration is Form REG-07.

Documents Required for Registration: While the notification does not specify the exact documents required for this registration, generally, the following may be required:

• PAN card of the entity.
• Proof of Business Address (such as utility bills, property tax receipts).
• Bank Account Details.
• Authorization Letter in case of a company/LLP.

Once registered under Form REG-07, the buyer can begin deducting GST TDS on qualifying transactions.

Credit of TDS for the Supplier:

The supplier or seller of the metal scrap will receive the credit of the TDS deducted by the buyer. This credit will be automatically reflected in the cash ledger of the supplier on a monthly basis.

Benefits for the Supplier:

• Unlike Income Tax, where TDS credit is available only after the end of the assessment year, under GST, the credit of the TDS is available monthly.
• The supplier can utilize this credit to:
  • Offset their GST liability.
  • Claim a refund in case of excess credit.

This mechanism provides flexibility to the supplier to manage their cash flow effectively under GST.

Monthly Filing of GSTR-7:

The buyer (who has deducted the TDS) is required to file Form GSTR-7 monthly, no later than the 10th of the subsequent month.

Filing Process:

• The buyer needs to report the TDS deducted in GSTR-7.
• Payment of TDS liability must be discharged along with this filing.

GSTR-7A: TDS Certificate

After the GSTR-7 has been filed, the GSTR-7A certificate will be automatically generated. This certificate acts similarly to Form 16A under the Income Tax Act, and serves as a confirmation to the supplier that TDS has been deducted and deposited.

Exemptions and Exclusions:

• TDS on metal scrap under GST is not applicable to the import of metal scrap. This means if the recipient (buyer) is importing metal scrap from a foreign country, no TDS deduction is required under GST.

Comparison with Income Tax:

The GST TDS system differs from the Income Tax TDS system in the following ways:

• Faster Credit Availability: Under GST, the credit of TDS deducted by the buyer is immediately available on a monthly basis through the cash ledger of the supplier. This is different from Income Tax, where the TDS credit is available only after the assessment year ends.
• Real-Time Cash Flow Management: Suppliers can either utilize this TDS credit to pay off GST liabilities or claim refunds if there is excess credit.

The introduction of TDS under GST for metal scrap transactions (above ₹2,50,000) brings a structured compliance requirement for buyers and sellers. By implementing Form REG-07 for TDS registration, filing GSTR-7, and receiving GSTR-7A certificates, both buyers and suppliers can manage their tax liabilities and credits more efficiently.

This notification aims to streamline tax deductions and ensure real-time credit availability for suppliers, while simultaneously simplifying the compliance procedures for TDS under GST.

With the provision of TDS credit monthly, the GST TDS mechanism ensures liquidity for the seller while promoting compliance among buyers dealing in metal scrap.

Conclusion:

The Notification No. 25/2024-Central Tax introduces a significant change by including metal scrap supplies under the purview of TDS provisions in GST. This amendment, effective from 10th October 2024, will require registered persons dealing in metal scrap to comply with the TDS provisions under Section 51 of the CGST Act. Businesses and dealers in this sector must ensure adherence to these provisions to avoid penalties and non-compliance issues.

The amendment is a step towards expanding the GST compliance net and ensuring proper tax deduction and reporting for a wider range of transactions, particularly in the metal scrap industry.