All India The Induction Furnace Association (AIIFA) on Thursday said that along with regional industry associations across the country, they have urged the government to rationalize the GST structure on metal scrap, a pressing issue for the iron and steel sector in India.
The GST Council is the competent authority to take an appropriate decision on the matter. It may be noted that their next meeting is expected to be held on February 18.
AIFA said that the induction furnace sector contributes about 35 per cent to the total steel production in India.
Associations representing the industry along with AIFA in appealing the request to the government are Induction Furnace Association Mandi Gobindgarh, Induction Furnace Association of North India and Steel Manufacturers Association of Maharashtra, Induction Furnace Association Mandi Gobindgarh, Himachal Pradesh Steel Industries Association and Iron and Steel Rerollers Association, Indore, Madhya Pradesh.
The scrap steel industry, which manufactures steel by recycling scrap steel through the induction furnace route, receives its raw material from scrap dealers.
AIFA said the industry is under scrutiny as scrap dealers have been found guilty of claiming bogus input tax credits. Now, to the extent the input tax credit is availed of is unregulated, the tax paid is less which ultimately leads to revenue leakage for the government.
AIFA said in a press statement that while government bodies have made efforts to prevent tax evasion due to bogus input tax credits, the actions taken by these bodies have also thrown up some practical challenges for manufacturers.
AIFA highlights the challenges faced by producers;
1. Local scrap dealers or traders are doing scrap billing on fake GST bills, collecting GST from manufacturers along with bill of materials, but not depositing the amount with the department. There is currently no mechanism available on the GST portal to collect GST or verify the authenticity of bills. As a result, frequent raids and notices are sent from tax authorities to manufacturers seeking details of scrap purchased from scrap dealers.
2. This is followed by disallowance of GST credit to the manufacturers on the presumption that the credit distributed by the scrap dealers is irregular.
3. Disruption of supply chain by ban on entry of items supplied by scrap dealers into the factory premises of manufacturers. At times, manufacturers are directed not to deal with certain scrap dealers which leads to disruption of the production cycle.
AIFA member Sudhir Goyal said, “The current GST regime causes significant disruption in the supply of key raw materials (i.e., metal scrap), thus making it a business continuity issue rather than just a tax issue. Many litigations have been filed for GST disputes, which cost the industry a huge amount of both cost and time.”
“On behalf of the industry, I would request the government to consider our recommendations to implement Reverse Charge Mechanism (RCM) and introduce separate HSN codes for old scrap and new scrap and reverse charge mechanism on sale Notify old scrap under (RCM). producer,” Goyal said.
The industry has proposed the following recommendations to help the industry:
1. Exemption of supply of metal scrap from GST when it is sold by various scrap dealers, except at the last stage of the chain when it is sold to manufacturers. In that case, the GST from the manufacturers will be collected through reverse charge mechanism, where the manufacturers will be responsible for paying the tax instead of the scrap dealers.
2. Introduction of separate entries in GST Schedules and HSN codes for old scrap and new scrap. Old scrap is already taxed at the time of sale of the original product and reverse logistics only involves collection and reuse. However, new scrap is generated from a certain economic activity. Hence, the two types of scrap should not be treated as the same from the tax point of view.
The association requested that if the proposal cannot be made applicable to all metal scrap, then it should be considered at least for old scrap and manufacturers should be notified of old scrap under RCM on sale. The collection of old scrap contributes to a cleaner environment and decarbonisation, making it eligible for a beneficial consideration under GST.
AIIFA is an association of members that recycle iron and steel waste to make iron and steel products through the induction furnace process.
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