TDS and GST Under RCM on Supply of Metal Scrap w.e.f. 10.10.2024

The metal scrap market is one of the leading markets in the Indian economy and the same has also come up as one of the key markets where GST evasion, i.e., fake firms, undervaluation, passing on ITC without an underlying supply of goods, etc. is carried out. Therefore, the 54th GST Council has recommended the following two major provisions for metal scrap dealers to curb tax evasions:

1. GST under RCM on purchase of Metal Scrap;
2. TDS on purchase of metal scrap

This article carries out a detailed discussion of the applicability of TDS under GST and RCM provisions for the purchase of Metal scrap.

1. TDS on purchase of Metal Scrap

1.1 So far applicability of TDS provisions under GST 

• Provisions related to TDS under GST are given under Section 51 of the CGST Act, 2017.
• As per Section 51(1) of the CGST Act, the Following class of persons are required to deduct TDS:
  • A department or establishment of Central Government or State Government; or
  • Local Authority; or
  • Government Agencies; or
  • such persons or category of persons as may be notified by the Government on the recommendations of the Council.

• In pursuance of power given under section 51(1)(d), vide Notification No. 50/2018- Central Tax dated 13th September 2018, the government notified the following persons:
  • an authority or a board or any other body set up by an Act of Parliament or a State Legislature; or established by any Government, with 51% or more participation by way of equity or control, to carry out any function;
  • Society established by the Central Government the State Government or a Local Authority;
  • public sector undertakings.

1.2 Applicability of TDS provisions on Metal Scrap

• As recommended by GST Council, amendment is made to Notificatio No. 50/2018- Central Tax dated 13th September, 2018 vide Notification No. 25/2024- Central Tax dated 9th October, 2024.
• As per the amendment, any registered person receiving supplies of metal scrap falling under Chapters 72 to 81 of the First Schedule of Customs Tariff Act, 1975 from another registered person is required to deduct TDS.
• Accordingly, TDS is required to be deducted if the following conditions are satisfied:
  • Supplier- Registered under GST
  • Recipient- registered under GST
  • Material supplied- Metal Scrap falling under chapters 72 to 81 of the First Schedule of the Customs Tariff Act, 1975.

• The following products are specified under Chapter 72 to Chapter 81 of the Customs Tariff Act, 1975:
  • 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
• TDS on metal scrap shall apply w.e.f. 10th October, 2024.

1.3 Rate at which TDS is to be deducted:

• The Recipient of metal scrap is required to deduct TDS @ 2% in the following manner:
  • Inter-state supply: 2% under IGST
  • Intra- State supply: 1% under CGST and 1% under SGST

1.4 Exemption

In the following scenarios, no TDS is required to be deducted under Section 51 of the CGST Act:

• The supplier of metal scrap is registered under GST but the recipient is unregistered;
• The supplier is unregistered under GST but the recipient is registered;
• Both The supplier and recipient are unregistered under GST;
• Where the total value of supply under a contract does not exceed INR 2,50,000.
• If the location of the supplier and the place of supply are different from the state of registration of the recipient

1.5 Other points to be considered:

• For TDS, the value of supply shall be taken excluding the value of CGST, SGST, IGST, or Cess, as indicated in the invoice;
• The Deductor is required to obtain a separate registration as a deductor under GST. Registration as a deductor is separate from regular GST registration;
• Amount of TDS shall be paid to the Government within 10 days after the end of the month in which TDS is deducted;
• The deductee shall claim the credit of such TDS in his electronic cash ledger after filing his TDS and TCS return on the GST portal;
• If any deductor fails to pay the amount of TDS deducted to the account of the government by the due date then interest shall be charged at the rate of 1.5% per month for such delay;
• The deductor is required to file a return of TDS deducted by the 10th of the following month in form GSTR-7;
• The refund to the deductor or the deductee arising on account of excess or erroneous deduction shall be dealt with by the provisions of section 54
• No refund shall be granted to the deductor if the amount deducted has been credited to the electronic cash ledger of the deductee.

2 GST under RCM on supply of Metal Scrap

• In the exercise of power given under Section 9(3) of the CGST Act, the Government specified the category of goods on which tax is required to be paid by the recipient under the Reverse charge Mechanism vide Notification No. 4/2017-Central Tax (Rate) dated 28.06.2017.
• As per Notification No. 06/2024-Central Tax (Rate) dated 08-10-2024, GST on the supply of metal scrap (specified under Chapters 72 to 81) by an unregistered person to a registered person is required to be paid under RCM.
• Accordingly, the registered recipient is required to pay GST under RCM.

Summary

Accordingly, the following is the gist of the applicability of TDS Provisions and RCM provisions on the supply of metal scrap: