A section of recyclers and primary copper producers, contributing to around 75% of the 1.6 million tonne (MT) domestic production last fiscal, is bearing the brunt of “price distortion” caused by another section of recyclers. The latter use domestically procured end-of-life scrap without paying the taxes and sell the final product at a discount.
Primary producers such as Hindalco, Vedanta, and Kutch Copper account for around 50% of the domestic supply. Of the remaining 50%, 17% comes from those who use imported scraps to recycle them into final products, and the remaining 33% comes from recyclers who procure domestic scrap to make finished goods.
The core problem for both genuine recyclers and primary producers is the use of fake invoicing and Goods and Service Tax arbitrage. By purchasing copper scrap through unregulated channels, some operators effectively reduce their average GST burden to less than 18%.
What do Industry players suggest?
“This tax avoidance gives some units a direct cost advantage, allowing them to sell finished products at lower prices than compliant businesses, thereby distorting market competition,” said an industry player.
In the absence of proper documentation, regulation and a mechanism to stop tax avoidance, only genuine recyclers end up paying the GST, at 18%, resulting in blocked working capital and delayed input tax credit (ITC) reconciliation. This causes the price distortion and losses to the government exchequer.
“The core issue is material anonymity, and with blockchain, we can give raw materials an immutable digital identity at their origin. This embeds trust directly into the supply chain, making compliance an automated outcome of transparency, rather
than a burden to be policed”; said Abhinav Sengupta, a professional working in the mining sector.
On copper scrap industry
India consumes around 7-8 lakh tonnes of copper scrap annually. Around 60-65% of the scrap is procured from informal, unregulated sources. As the existing GST structure is based on the B2B and B2C models, aggregators operating in the C2B trade are not adequately covered, leading to manipulation. The absence of clear definitions for scrap nomenclature, HSN codes, and quality parameters has led to the treacherous situation that the secondary sector players are in.
“The problem of fake invoicing has far-reaching implications for the entire industry.
The misreporting or no reporting, as is the case most of the time, results in GST violations and quality deterioration, forcing honest businesses to engage in unethical practices to remain competitive,” said a recycler, adding that this encourages off-
book trading rather than incentivising formal participation.
“Eliminating fake invoicing will reduce the price gap between billed and unbilled materials and stabilise market prices. With proper measures, both recyclers and primary producers can co-exist,” they said. A great deal of the problem will be addressed, they said, through clear definitions for scrap nomenclature, HSN codes and quality parameters.
Lack of formal documentation leads to widespread invoicing fraud, they claim, adding that GST manipulation artificially reduces prices, affecting both domestic and imported raw material pricing. They say that policies such as GSTR-2 B and the 2% TDS deduction have not addressed the root cause of the issue. The proposed track-and-trace mechanism is
also likely to fail unless the core problem is recognised.
Instead, the solution lies in implementing a traceability system for domestic scrap that includes parameters for
copper content, quality, and recovery to curb fake invoicing. A digital platform ensuring traceability without commercial exploitation will enable greater regulation and compliance.
Stakeholders also request that metal scrap be brought under the 5% GST slab, as a lower GST rate would significantly reduce unbilled transactions by diminishing the incentive to avoid billing and manipulate GST.
