Ease of Doing Business for MSMEs: All India Induction Furnaces Association (AIIFA), along with other industry associations, requested the government to rationalise the GST structure on metal scraps which is impacting the entire iron and steel sector in the country, as per an official release by AIIFA.
The scrap steel industry manufactures steel by recycling scrap steel, sourced from scrap dealers, with the help of induction furnace route, contributing nearly 35 per cent to the total steel production in the country.
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The scrap steel industry is currently under scrutiny as the scrap dealers have been claiming fraudulent input tax credits as a result of which there is an underpayment of tax which leads to revenue loss for the government.
The government bodies have taken actions to curb tax evasion on account of fraudulent input tax credit, but the actions taken have also led to certain practical challenges for the manufacturers.
An industry representative, Danish Goyal said that the local scrap dealers are billing scrap on fraudulent GST bills and collecting GST from manufacturers along with the material bill and not depositing the funds to the department.
There is currently no mechanism available on the GST portal to verify the deposit of GST or the authenticity of bills, said Goyal. As a result, tax authorities frequently raid manufacturing units and send notices seeking details of scrap purchased from scrap dealers. It further leads to disallowance in GST credits to manufacturers based on the premise that the credit distributed by the scrap dealers is irregular.
Another fundamental issue is disruption in the supply chain by restriction of entry of goods supplied by certain scrap dealers into the factories of the manufacturers. AIIFA Member, Sudhir Goyal said that the current GST regime leads to disruptions in the supply of the main raw material (i.e., metal scrap) making it a business continuity issue rather than merely a tax issue. Moreover, the litigations filed for GST disputes costs a lot of time and money, he added.
President of Induction Furnace Association at Mandi Gobindgarh, Mohinder Gupta said that the measures to deal with the scrap dealers are hindering the plans to achieve the steel production target in India envisaged in the National Steel Policy, 2017.
To address the issue, the industry associations have proposed to exempt the supply of metal scrap from GST when it is sold by scrap dealers, except for the last leg of the chain when it is sold to manufacturers. The GST needs to be collected from the manufacturers through a reverse charge mechanism, where the manufacturers would be responsible for paying the tax rather than the scrap dealers.
Another suggestion is to introduce separate entries in the GST schedules and HSN (Harmonized System of Nomenclature) codes for the old scrap and new scrap. Old scrap is taxed at the time of the original product’s sale and the reverse logistics involves only collection and reuse and new scrap is generated from a definite economic activity.
The industry opines that the two types of scrap should not be treated equally from a tax perspective. The association appealed “if the proposal cannot be applied to all metal scrap, it should at least be considered for old scrap and notify old scrap under Reverse Charges Mechanism (RCM) on sales to manufacturers,” as per the release.
The iron and steel sector contributes two per cent to the country’s GDP and the steel scrap processing is the backbone for “Mission Green Steel” so, the implementation of the proposed GST structure and recommendations would be a relief for the industry.
Other associations that represented the industry along with AIIFA for GST appeal across the Government are Induction Furnace Association Mandi Gobindgarh, Induction Furnace Association of North India, Steel Manufacturers Association of Maharashtra, Himachal Pradesh Steel Industries Association and Iron and Steel Rerollers Association, Indore, Madhya Pradesh.
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