Central idea: The article discusses the possibility of the government presenting the reverse charging of Goods and Services Tax (GST) on Steel and other metal scraps before the GST council.

Scrap recycling in India

• India is now the world’s second-largest steel producer, with output expected to increase by 17.8 per cent to 118.1 million tonnes in 2021.
• In contrast to countries that take pride in using increasing amounts of steel scrap to produce ferrous metal and thus reduce carbon dioxide (CO2) emissions, India only uses about 30 MT of scrap per year.
• India is still in its early stages, with low recycling awareness. Unfortunately, only 30 per cent of India’s recyclable scrap is recycled.

What is Reverse Charging of GST?

• Reverse charging of Goods and Services Tax (GST) is a mechanism in which the liability to pay the tax is shifted from the supplier to the recipient of goods or services.
• Under normal circumstances, it is the supplier who is liable to pay GST to the government.
• However, in cases of reverse charging, the recipient of the goods or services becomes liable to pay the tax instead of the supplier.
• Reverse charging is usually implemented in situations where the supplier is not registered under GST or has failed to deposit the GST dues with the government.
• Reverse charging is a way for the government to ensure that the GST liability is fulfilled even if the supplier does not fulfill its obligations.

Some examples of goods and services on which reverse charging is already applied are:

1. Services provided by a goods transport agency
2. Services provided by an advocate to a business entity
3. Supply of manpower for any purpose
4. Renting of a motor vehicle provided by any individual or HUF to a business entity
5. Supply of specified goods like gold, silver, or precious stones by an unregistered supplier to a registered person.

Why scrap industry?

• The scrap industry in India is a largely unorganized sector, and many small players operate without proper registration or compliance.
• This has led to tax evasion and revenue losses for the government.
• Reverse charging on the scrap industry is aimed at plugging this gap and ensuring that the GST liability is fulfilled even if the supplier (in this case, the scrap dealer) is not registered or fails to deposit the GST dues with the government.

Consequences of the move

• Compliance Costs: The implementation of reverse charging on the scrap industry may increase compliance costs for stakeholders. Small players in the industry may find it challenging to comply with the new regulations, leading to increased compliance costs.
• Administrative Burden: The scrap industry in India is largely an unorganized sector, and the application of reverse charging may impose an administrative burden on stakeholders. Many small players may not have the necessary infrastructure or resources to comply with the new regulations.
• Cash flow impact: Reverse charging could impact the cash flow of small businesses, as they would have to pay GST upfront and then claim it back through input tax credit. This could lead to a shortage of working capital for small businesses.
• Increased Paperwork: The application of reverse charging on the scrap industry may lead to an increase in paperwork and documentation for stakeholders. This could be challenging for small players who may not have the resources to handle the additional paperwork.
• Implementation Challenges: The implementation of reverse charging on the scrap industry could be challenging, given that the sector is largely unorganized. It could be challenging to track unregistered players, and the government may face difficulties in enforcing the new regulations.

Woes of Scrap Industry in India

• Lack of infrastructure: The scrap industry in India is primarily an unorganized sector, with limited access to infrastructure such as proper storage facilities, transport, and handling equipment. This can limit the efficiency and productivity of the sector.
• Low productivity: The scrap industry in India faces low productivity due to the use of outdated technology and inadequate skills among workers. This can limit the competitiveness of the industry and its ability to meet the demand for scrap.
• Inadequate regulatory support: The scrap industry in India lacks adequate regulatory support, which can result in a lack of standardization and transparency in the sector. This can lead to issues such as underreporting of sales, tax evasion, and other malpractices.

Stakeholder response

• The scrap industry has expressed concerns over the potential increase in compliance costs and administrative burden that may arise from the implementation of reverse charging.
• This might affect the recycle economy.

Crack Prelims 2023! Talk to our Rankers

(Click) FREE 1-to-1 on-call Mentorship by IAS-IPS officers | Discuss doubts, strategy, sources, and more

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now