GST and the Scrap Metal Trade
The Goods and Services Tax (GST) significantly impacts the scrap metal business in India. Whether you're a household seller, a scrap dealer, or an industrial buyer, understanding the GST framework helps you price correctly, maintain compliance, and avoid penalties. This guide breaks down the key GST provisions affecting scrap transactions in simple terms.
GST Rates on Different Scrap Types
Scrap metal falls under different HSN codes and attracts different GST rates:
- Iron and steel scrap (HSN 7204): 18% GST
- Copper scrap (HSN 7404): 18% GST
- Aluminum scrap (HSN 7602): 18% GST
- Brass scrap (HSN 7404): 18% GST
- Paper and cardboard waste (HSN 4707): 5% GST
- Plastic scrap (HSN 3915): 5% GST
- E-waste (various HSN): 18% GST
The difference matters: metal scrap at 18% has a significantly higher tax component than paper and plastic at 5%.
The Reverse Charge Mechanism (RCM) for Scrap
This is the most important GST concept for the scrap industry. Under normal GST rules, the seller charges GST and pays it to the government. But for scrap metal purchased from unregistered dealers (those without GST registration), the buyer is liable to pay GST under the Reverse Charge Mechanism.
This means if a registered scrap dealer buys iron scrap from a kabadiwalla (who typically doesn't have GST registration), the dealer must self-invoice the GST at 18% and pay it to the government. The dealer can then claim Input Tax Credit (ITC) on this amount when they sell the scrap to a mill or factory.
For household sellers, this is good news — you don't need to worry about GST. The dealer handles the tax obligation. You simply receive the quoted rate for your scrap.
When Do You Need GST Registration?
If you're operating as a scrap dealer or trader, GST registration is mandatory if your annual turnover exceeds ₹40 lakhs (₹20 lakhs for special category states). Given that even a small scrap shop can easily cross this threshold, most established dealers need GST registration.
Benefits of GST registration for dealers:
- Claim ITC on purchases, reducing effective tax burden
- Issue proper tax invoices, which mills and factories require
- Participate in government tenders and supply to large companies
- Build credibility with customers and suppliers
Invoicing Requirements
Every registered scrap dealer must issue a tax invoice for sales above ₹200. The invoice must include:
- Dealer's GSTIN and address
- Buyer's GSTIN (if registered)
- HSN code for the scrap type
- Quantity (in kg/tonnes) and rate per unit
- GST amount broken into CGST + SGST (for intra-state) or IGST (for inter-state)
- Total invoice value
For purchases from unregistered suppliers, the dealer must generate a self-invoice under RCM provisions.
E-Way Bill Requirements
For scrap metal consignments valued above ₹50,000, an E-Way Bill must be generated before transportation. This applies to both intra-state and inter-state movement. The E-Way Bill is generated on the ewaybillgst.gov.in portal and must accompany the consignment during transport.
Many small dealers overlook this requirement, leading to penalties during transit checks. The penalty for moving goods without an E-Way Bill is ₹10,000 or the tax amount, whichever is higher — a significant cost on a ₹50,000 consignment.
TCS (Tax Collected at Source) Provisions
Under Section 206C of the Income Tax Act, buyers of scrap are required to collect TCS at 1% from the seller if the sale value exceeds ₹50 lakhs in a financial year. This applies primarily to mills, factories, and large traders buying from dealers. The TCS is adjustable against the seller's income tax liability.
Practical Tips for Scrap Dealers
- Maintain a purchase register even for small cash purchases from unregistered kabadiwallas — this supports your RCM claims
- Use accounting software that handles RCM calculations automatically (Tally, Zoho Books)
- File GST returns on time — the scrap industry is on the tax department's radar for compliance
- Keep weighbridge slips and transport receipts as supporting documents for all transactions
- Consult a CA familiar with the scrap industry for year-end compliance and ITC reconciliation