New Delhi, Feb 16, 2023: All India Induction Furnaces Association (AIIFA) along with regional industry associations from across the country gathered in the capital today to request the Government to rationalise the GST structure on metal scraps which is a pressing issue for the iron and steel sector in India.
The GST Council is the competent authority to take appropriate decision on the matter. It may be noted that their next meeting is expected to take place in February. The Induction Furnace sector contributes around 35% to the total steel production in India. The associations that represented the industry along with AIIFA in raising this request appeal to the Government are Induction Furnace Association Mandi Gobindgarh, Induction Furnace Association of North India, and Steel Manufacturers Association of Maharashtra, Induction Furnace Association Mandi Gobindgarh, Himachal Pradesh Steel Industries Association and Iron and Steel Rerollers Association, Indore, Madhya Pradesh.
The scrap steel industry, which manufactures steel by way of recycling the scrap steel by induction furnace route sources its raw material from scrap dealers. The industry is under scrutiny as the scrap dealers have been found guilty of claiming fraudulent input tax credits. Now, to the extent the input tax credit availed is irregular, there is an underpayment of tax which eventually leads to revenue leakage for the Government. While the Government bodies have made efforts to curb tax evasion on account of fraudulent input tax credit, the actions taken by these bodies have also led to certain practical challenges for the manufacturers.
Mr. Danish Goyal an industry representative briefed the media about the industry and the challenges faced by the manufacturers, as listed below:
- Local scrap dealers or traders are billing scrap on fraudulent GST bills, collecting GST from manufacturers along with the material bill, but not depositing the funds with the department. There is currently no mechanism available on the GST portal to verify the deposit of GST or the authenticity of bills. As a result, frequent raids and notices from tax authorities are sent to manufacturers seeking details of scrap purchased from scrap dealers.
- This is also followed by a disallowance in GST credits to manufacturers on the assumption that the credit distributed by the scrap dealers is irregular.
- Disruption in supply chain by restriction of entry of goods supplied by scrap dealers into the factory premises of the manufacturers. At times, the manufacturers are directed to not deal with certain scrap dealers leading to disruptions in the production cycle.
Speaking on the issue, Mr. Sudhir Goyal, Member, All India Induction Furnaces Association (AIIFA), stated that “the Induction Furnace industry with over 35% contribution is one of the biggest contributors to the overall steel production of the country. The current GST regime causes significant disruption in the supply of the main raw material (i.e., metal scrap), thus making this a business continuity issue rather than a mere tax issue. Also, there are several litigations filed for GST disputes, which costs the industry enormous amount of cost and time both. On behalf of the industry, I would request the Government to consider our recommendations for implementing Reverse Charges Mechanism (RCM) and introducing distinct HSN Codes for the old scrap and new scrap and notify old scrap under Reverse Charges Mechanism (RCM) on sales to manufacturers.
Mr. Mohinder Gupta, President of Induction Furnace Association Mandi Gobindgarh added, “we appreciate that the Government has been focusing on supporting business continuity and ease of doing business on an ongoing basis. However, the measures to tame the errant scrap dealers also impact the industry adversely. It has de-railed the existing plans of the industry to invest more in this sector and to achieve the target steel production in India as envisaged in the National Steel Policy, 2017. Therefore, we would like to request the Government to consider our recommendations in their upcoming GST Council Meet.”
The industry has proposed the following recommendations for helping the industry:
- Exempting the supply of metal scrap from GST when it is sold by various scrap dealers, except for the last leg of the chain when it is sold to manufacturers. In that case, the GST would 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.
- To introduce separate entries in the GST schedules and HSN codes for the old scrap and new scrap. Old scrap is already taxed at the time of the original product’s sale and the reverse logistics involves only collection and reuse. New scrap, however, is generated from a definite economic activity. Therefore, the two types of scrap should not be treated equally from a tax perspective. The association requests 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. The collection of old scrap contributes to a cleaner environment and decarbonization, making it deserving of a beneficial consideration under GST.
Himachal Pradesh Steel Industries Association’s President, Mr. Megh Raj Garg says that “the proposed changes will not impact the revenue of the Government. Instead, it will increase the tax collections. Industry will also become more organized and get relieved from the malpractice of claiming fraudulent input tax credit. This will be a win-win for both the Government and the Industry as it will reduce tax evasion from the Government’s standpoint and will go a long way in supporting the industry in these difficult times.”
Mr. Satish Mittal, President, Iron and Steel Rerollers Association Madhya Pradesh and Mr. Praveen Goyal, Induction Furnace Association, Maharashtra, Mr. Kamal Goyal, President, Induction Furnace Association, Uttar Pradesh have highlighted, “considering the target set in the NSP-2017 and the trend to increase the steel production through scrap, it is imperative for the industry that the GST Council considers their proposal and notifies the suggested changes in the GST structure.”
It is noteworthy that the iron and steel sector is strategically an important sector for India, contributing 2% to the overall national GDP and providing ample employment opportunities. India is already the 3rd largest producer of steel in the world and is on the road to becoming the 2nd largest. Steel Scrap processing is the backbone for ”Mission Green Steel” Consideration of this issue and the implementation of the proposed GST structure would be a relief for the industry.
About All India Induction Furnaces Association (AIIFA): -
All India Induction Furnaces Association (AIIFA) is an association of members that recycle iron and steel waste to make iron and steel products through the induction furnace process (hereinafter referred to as the manufacturers / recyclers).
