Metal Scrap Supplied By Unregistered Suppliers Brought Under Reverse Charge

As per the scheme of the Goods and Services legislation, generally, the supplier of goods and services is liable to pay GST. However, the liability to pay tax can be statutory relocated on the recipient under two situations mentioned in Section 9 (3) and 9 (4) of the CGST Act, 2017. This shifting of the tax liability is known as Reverse Charge Mechanism in GST where the recipient of supplies is liable to pay tax instead of the supplier. The “recipient” is transposed as “supplier” for the purposes of tax liability and the tax compliance liability shifts to Recipient.

Section 9 (3) of CGST Act empowers the Government to notify the categories of goods and/or Services on which recipient would be liable to pay the GST.  The Government can exercise this power on the recommendations of the GST Council. The 54^th GST Council made two paradigm changing recommendations in the Metal Scrap Sector of India:

• Reverse Charge Mechanism (RCM) to be introduced on supply of metal scrap by unregistered person to registered person provided that the supplier shall take registration as and when it crosses threshold limit and the recipient who is liable to pay under RCM shall pay tax even if supplier is under threshold.
• A TDS of 2% will be applicable on supply of metal scrap by registered person in B to B supply.

Now, the Central Government has notified the recommendation of the GST Council so far reverse charge is concerned. The Government has issued Notification No. 06/2024-Central Tax (Rate) dated 08.10.2024  which amends basic notification 4/2017- Central Tax (Rate) dated 28.06.2017 and inserts   various metal scraps falling under CTH 72, 73, 74, 75, 76, 77, 78, 79, 80 or 81 for reverse charge with effect from 10.10.2024.

The text of the Notification is as follows:

NOTIFICATION
New Delhi, the 8th October, 2024
Notification No. 06/2024-Central Tax (Rate)

G.S.R. 614(E).— In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2017- Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub- section (i), vide number G.S.R. 676(E), dated the 28^th June, 2017, namely:-

In the said notification, in the Table, after S. No. 7 and the entries relating thereto, the following S. No. and entries shall be inserted, namely: –

2. This notification shall come into force on the 10^th day of October, 2024.

[F. No. CBIC-190354/149/2024-TO(TRU-II)]
AMREETA TITUS, Dy. Secy.

Note: – The principal notification No. 4/2017-Central Tax (Rate) was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 676(E), dated the 28th June, 2017 and was last amended by notification No. 19/2023-Central Tax (Rate), dated the 19th October, 2023, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section   (i), vide number G.S.R. 780(E), dated the 19th October, 2023.

As a result, with effect from 10.10.2024, if a registered recipient receives supplies of metal scrap from an unregistered supplier, the recipient is liable to pay GST under reverse charge.

It is significant to note that tax under Reverse Charge Mechanism can be paid through Electronic Cash Ledger only. This will impact the working capital cycle of the Metal Industry, as the tax would be payable immediately on receipt of the supplies. Though the ITC would be available against the tax paid under reverse charge, the metal scarp industry would have to streamline their inventory management as idle ITC is a financial cost.

*****

Disclaimer: The article is only for information purposes. The views, thoughts, and opinions expressed in the text belong solely to the author and are purely for educational purposes. For any query, the author can be reached at [email protected]