After increased scrutiny by GST authorities, steel companies that use scrap metal as input have suggested removal of tax on the sale of the raw material between dealers and imposition of the levy on its sale to manufacturers under reverse charge mechanism.
The All India Induction Furnaces Association, which represents 35 percent of the country's steel production capacity, has petitioned the finance ministry on the rampant action by intelligence bodies and the need for correcting the tax framework.
The representation follows the rise in instances of GST authorities unearthing fraudulent input tax credits. An industry executive said that despite taking all precautions – such as matching of invoices with details in the form GSTR-2A, actual receipt of goods, and possession of tax invoice – the credits claimed by the manufacturers have been disputed by the field formations.
Also, in multiple cases, field formations have instructed manufacturers to not receive goods from suspicious dealers, which the industry says is leading to significant disruption in steel manufacturers' supply chain and production plans.
One of the options suggested by the association in a representation includes exempting the sale of metal scrap between scrap dealers and imposition of tax under reverse charge mechanism on sales to manufacturers, who can pay GST and claim the input tax credit.
“The rationale behind this option is that all metal scrap eventually ends up with manufactures only (since there is no alternate usage of scrap), and, therefore, GST liability can be fastened on these manufacturers,” said another industry executive.
The industry body has also suggested rationalizing the GST rate on metal scrap to 5 percent from the existing 18 percent.