From October 10, 2024, Registered Traders Purchasing Metal Scrap from Unregistered Persons Must Declare 18% GST and Issue Self-Invoice under RCM 

From October 10, 2024, the Goods and Services Tax (GST) regulations regarding the purchase of metal scrap from unregistered persons by registered traders will undergo significant changes. The trade and transportation of metal scrap will be legally permitted only if the following steps are taken:

Key Provisions:

1. Reverse Charge Mechanism (RCM):
2. Self-Invoice Requirement:
3. Payment of Tax via GSTR-3B:
4. Input Tax Credit (ITC):
5. Legal Trade and Transportation:

• Under GST law, a Reverse Charge Mechanism (RCM) is triggered when a registered person purchases goods or services from an unregistered supplier. In this case, the buyer (registered trader) is responsible for declaring and paying the GST, instead of the supplier.
• For metal scrap, the applicable GST rate is 18%, which the registered trader must declare and pay under RCM.
• According to Section 31(3)(f) of the CGST Act, 2017, if a registered trader procures goods from an unregistered supplier, they must generate a self-invoice (also known as a purchase bill). This self-invoice serves as the document to account for the transaction since the unregistered seller is not issuing a tax invoice.
• The trader will issue this self-invoice in their own name, declaring the details of the metal scrap purchase, and will include the applicable 18% GST on the transaction value.
• The tax on the metal scrap purchase (18% GST under RCM) must be paid by the registered trader when filing their GSTR-3B return. The GSTR-3B is a monthly return form for summarizing sales, purchases, and tax liability.
• The trader must declare this transaction under the Reverse Charge section in their GSTR-3B return and pay the tax due.
• After paying the GST under RCM, the registered trader is eligible to claim Input Tax Credit (ITC) on the tax paid, provided that the metal scrap is used for further taxable supplies in the course of business.
• This allows the registered trader to offset the GST liability from other sales against the RCM paid on metal scrap, thus reducing the overall tax burden.
• As of October 10, 2024, the purchase and transportation of metal scrap from unregistered persons will be legally valid only if the registered trader has declared the 18% tax under RCM and issued the self-invoice as required by law.
• Failing to issue a self-invoice or declare the tax can result in penalties and legal action under the GST law.

Summary:

• GST Rate: 18% on metal scrap under RCM.
• Obligation: Registered traders must issue a self-invoice for metal scrap purchases from unregistered suppliers.
• Tax Payment: The registered trader is responsible for paying the 18% GST via GSTR-3B under the Reverse Charge Mechanism.
• Input Tax Credit: Eligible for ITC on the GST paid under RCM.
• Trade Legality: Trade and transportation of metal scrap from unregistered persons are only legal after complying with these GST requirements.

This regulatory change aims to streamline the tax collection process and prevent tax evasion in the metal scrap trade.

As per the scheme of the Goods and Services legislation, generally, the supplier of goods and services is liable to pay GST. However, the liability to pay tax can be statutory relocated on the recipient under two situations mentioned in Section 9 (3) and 9 (4) of the CGST Act, 2017. This shifting of the tax liability is known as Reverse Charge Mechanism in GST where the recipient of supplies is liable to pay tax instead of the supplier. The “recipient” is transposed as “supplier” for the purposes of tax liability and the tax compliance liability shifts to Recipient.

Section 9 (3) of CGST Act empowers the Government to notify the categories of goods and/or Services on which recipient would be liable to pay the GST.  The Government can exercise this power on the recommendations of the GST Council. The 54^th GST Council made two paradigm changing recommendations in the Metal Scrap Sector of India:

• Reverse Charge Mechanism (RCM) to be introduced on supply of metal scrap by unregistered person to registered person provided that the supplier shall take registration as and when it crosses threshold limit and the recipient who is liable to pay under RCM shall pay tax even if supplier is under threshold.
• A TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.

Now, the Central Government has notified the recommendation of the GST Council so far reverse charge is concerned. The Government has issued Notification No. 06/2024-Central Tax (Rate) dated 08.10.2024  which amends basic notification 4/2017- Central Tax (Rate) dated 28.06.2017 and inserts   various metal scraps falling under CTH 72, 73, 74, 75, 76, 77, 78, 79, 80 or 81 for reverse charge with effect from 10.10.2024.

The text of the Notification is as follows:

NOTIFICATION
New Delhi, the 8th October, 2024
Notification No. 06/2024-Central Tax (Rate)

G.S.R. 614(E).- In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2017- Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub- section (i), vide number G.S.R. 676(E), dated the 28^th June, 2017, namely:-

In the said notification, in the Table, after S. No. 7 and the entries relating thereto, the following S. No. and entries shall be inserted, namely: -

2. This notification shall come into force on the 10^th day of October, 2024.

[F. No. CBIC-190354/149/2024-TO(TRU-II)]
AMREETA TITUS, Dy. Secy.

Note: - The principal notification No. 4/2017-Central Tax (Rate) was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 676(E), dated the 28th June, 2017 and was last amended by notification No. 19/2023-Central Tax (Rate), dated the 19th October, 2023, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section   (i), vide number G.S.R. 780(E), dated the 19th October, 2023.

As a result, with effect from 10.10.2024, if a registered recipient receives supplies of metal scrap from an unregistered supplier, the recipient is liable to pay GST under reverse charge.

It is significant to note that tax under Reverse Charge Mechanism can be paid through Electronic Cash Ledger only. This will impact the working capital cycle of the Metal Industry, as the tax would be payable immediately on receipt of the supplies. Though the ITC would be available against the tax paid under reverse charge, the metal scarp industry would have to streamline their inventory management as idle ITC is a financial cost.

നാളെ മുതൽ (10.10.2024) മെറ്റൽ സ്ക്രാപ്പ് രജിസ്ട്രേഷൻ ഇല്ലാത്ത വ്യക്തികളിൽ നിന്നും വാങ്ങുമ്പോൾ 18% നികുതി ഡിക്ലയർ ചെയ്ത് സെൽഫ് ഇൻവോയ്സ് എടുത്ത് മാത്രമേ വ്യാപാരവും ട്രാൻസ്പോർട്ടേഷനും സാധ്യമാകൂ

നാളെ മുതൽ (10.10.2024) രജിസ്ട്രേഷൻ ഇല്ലാത്ത വ്യക്തികളിൽ നിന്നും രജിസ്ട്രേഷനുള്ള വ്യാപാരി മെറ്റൽ  സ്ക്രാപ്പ് വാങ്ങികുമ്പോൾ  ആയതിന് 18% നികുതി ഡിക്ലയർ ചെയ്ത്, വകുപ്പ് 31 (3) (f) പ്രകാരം സെല്ഫ്  ഇൻവോയ്സ് (പാർച്ചസ് ബില്ല്) എടുത്ത് മാത്രമേ വ്യാപാരവും, ട്രാൻസ്പോർടാഷനും  നിയമപരമായി സാധിക്കൂ. പ്രസ്തുത ചരക്കിൻ്റെ നികുതി 18% റിവേഴ്സ് ചാർജ്ജായി GST രജിസ്റ്റർ ചെയ്ത വ്യാപാരി തന്നെ തങ്ങളുടെ GSTR 3B റിട്ടേണിലൂടെ അടയ്ക്കേണ്ടതുമാണ്. ആയതിന് ഇന്പുട് ടാക്സ് ക്രെഡിറ്റ് ലഭിക്കുന്നതാണ്. 

ജിഎസ്ടി നിയമത്തിലെ വകുപ്പ് 9(3) പ്രകാരം സെൻട്രൽ ടാക്സ് (റേറ്റ്) 4/2017 , ഇന്റഗ്രേറ്റഡ് ടാക്സ് (റേറ്റ്) 4//2017 എന്നിവയിൽ മാറ്റം വരുത്തി നോട്ടിഫിക്കേഷൻ പുറപ്പെടുവിച്ചു. ഒക്ടോബർ 10 2024 മുതൽ ആണ് ഇത് നിലവിൽ വരുന്നത്.