Reverse Charge Mechanism on Waste and Scrap: A Detailed Analysis of Notification No. 04/2026-Central Tax (Rate)

Summary: Notification No. 04/2026-Central Tax (Rate), dated 27 October 2026, has expanded the scope of the Reverse Charge Mechanism (RCM) under GST with effect from 1 November 2026. Issued under Section 9(3) of the CGST Act, 2017, the notification amends Notification No. 4/2017-Central Tax (Rate) by bringing four additional categories of goods within the reverse charge framework when supplied by an unregistered person to a registered person. These comprise used cooking oil under HSN 1518, waste and scrap of plastics under HSN 3915, waste and scrap of tyres under HSN 4004, and electrical and electronics waste and scrap under HSN 8549. The amendment shifts responsibility for payment of GST to the registered recipient but does not independently prescribe the applicable tax rates, which must be determined under the relevant GST rate notifications and correct classification of goods. Businesses operating in recycling, scrap processing, waste management and related procurement activities must identify covered transactions, verify suppliers’ GST registration status, determine the applicable tax rate and discharge RCM liability. The article examines the four newly notified categories, illustrative GST rates, an example of ₹10 lakh in plastic scrap purchases attracting ₹1.80 lakh GST at an assumed 18% rate, and the distinction between tax liability and eligibility for input tax credit. It also discusses cash-flow implications, supplier master controls, product classification, purchase documentation, RCM reconciliation and accounting-system requirements. A practical compliance matrix and ready reckoner explain how businesses can identify reverse-charge transactions and assess other notified RCM categories involving goods and services. The central compliance principle is that RCM obligations must be identified when goods are procured, rather than only at the stage of filing GST returns.

Introduction

The Reverse Charge Mechanism (RCM) under GST represents an important departure from the normal principle of taxation. Ordinarily, the supplier of goods or services is liable to collect and pay GST. However, in specified cases notified under Section 9(3) of the Central Goods and Services Tax Act, 2017, the liability to pay tax is shifted from the supplier to the recipient.

The Government has recently expanded the scope of RCM for certain categories of waste and scrap through Notification No. 04/2026-Central Tax (Rate) dated 27 October 2026.

The notification amends Notification No. 4/2017-Central Tax (Rate) and brings four additional categories of goods within the reverse charge framework where the supply is made by an unregistered person to a registered person.

The amendment is effective from 1 November 2026.

This development is particularly relevant for businesses engaged in recycling, waste management, scrap processing and procurement of recyclable materials.

1. The Legal Framework

Section 9(3) of the CGST Act empowers the Government, on the recommendations of the GST Council, to specify categories of supply on which the recipient shall be liable to pay GST under reverse charge.

Notification No. 4/2017-Central Tax (Rate) contains the categories of goods notified under this mechanism.

Notification No. 04/2026-Central Tax (Rate) inserts four new entries into this notification.

The important feature of all four new entries is the same:

Supplier: Any unregistered person

Recipient: Any registered person

Accordingly, where the specified goods are supplied by an unregistered person to a registered person, the recipient is required to examine and discharge the applicable GST liability under RCM.

2. Which Goods Have Been Brought Under RCM?

The following four categories have been added:

S. No.	HSN Heading	Description
1	1518	Used cooking oil
2	3915	Waste and scrap of plastics
3	4004	Waste and scrap of tyres
4	8549	Electrical and electronics waste and scrap

For each of these entries, the supplier is specified as any unregistered person and the recipient as any registered person.

This makes the GST registration status of the supplier a critical factor in determining the applicability of the reverse charge mechanism.

3. Understanding the Four Newly Covered Categories

Used Cooking Oil – Heading 1518

Used cooking oil is generated by restaurants, hotels, food processing establishments and several other businesses involved in food preparation.

Such oil may subsequently enter the recycling or processing ecosystem for industrial or other permitted uses.

Where used cooking oil covered by Heading 1518 is procured by a registered person from an unregistered supplier, the recipient must evaluate its liability under the newly inserted RCM entry.

Businesses engaged in collection and processing of used cooking oil should therefore establish a mechanism to identify:

• The nature of the material purchased;
• The supplier’s GST registration status; and
• The value of transactions liable to reverse charge.

Waste and Scrap of Plastics – Heading 3915

Plastic waste and scrap are widely traded through a network of collectors, aggregators, traders and recycling units.

A significant compliance challenge in this sector is the large number of small suppliers and informal procurement channels.

Under the new RCM entry, a registered recipient procuring waste and scrap of plastics from an unregistered person needs to identify such transactions and discharge the applicable GST liability.

For recycling businesses, this may require changes in the supplier onboarding and purchase accounting process.

Waste and Scrap of Tyres – Heading 4004

The tyre recycling and processing sector may also be significantly affected by the amendment.

Businesses purchasing tyre waste and scrap from small or unregistered suppliers should review their procurement records from 1 November 2026 onwards.

The key compliance issue will be ensuring that transactions falling under Heading 4004 are properly identified at the time of procurement.

Electrical and Electronics Waste and Scrap – Heading 8549

The e-waste sector involves a diverse range of materials and suppliers.

Electrical and electronics waste and scrap covered under Heading 8549 has also been brought under RCM where supplied by an unregistered person to a registered person.

Given the technical nature of e-waste classification, businesses should maintain proper purchase descriptions and supporting documentation to establish the nature of the material procured.

4. What Rate of GST Will Apply Under RCM?

One of the most important questions arising from Notification No. 04/2026-Central Tax (Rate) is the rate of GST payable by the recipient.

It is important to understand that Notification No. 04/2026 does not prescribe a separate GST rate. The notification only shifts the liability to pay tax from the supplier to the recipient under the Reverse Charge Mechanism.

The recipient is required to pay GST at the rate applicable to the underlying goods under the relevant GST rate notification.

Applicable GST Rates on the Newly Notified Goods

S. No.	HSN Heading	Description	GST Rate*
1	1518	Used cooking oil	5%
2	3915	Waste and scrap of plastics	18%
3	4004	Waste and scrap of tyres	5%
4	8549	Electrical and electronics waste and scrap	18%

*The applicable rate should always be verified with reference to the precise description and classification of the goods under the relevant GST rate notification.

A Key Principle: RCM Changes the Person Liable to Pay Tax, Not the Tax Rate

The following distinction is important:

The Rate Notification determines how much GST is payable.

The RCM Notification determines who is liable to pay that GST.

For example, where a registered recycling company purchases waste and scrap of plastics falling under Heading 3915 from an unregistered supplier for ₹10 lakh, the recipient would be required to examine the RCM provisions and discharge GST at the applicable rate.

Assuming the transaction is covered by the relevant rate entry at 18%, the GST liability would be:

Particulars	Amount
Value of plastic waste and scrap	₹10,00,000
GST @ 18%	₹1,80,000
Total tax-inclusive value	₹11,80,000

The GST liability under RCM is required to be discharged by the recipient. Subject to fulfilment of the conditions prescribed under the GST law, the tax paid may subsequently be available as Input Tax Credit.

For an intra-State supply, the tax would generally be discharged as CGST and SGST, whereas for an inter-State supply, IGST would apply.

Why Correct Classification Remains Critical

The inclusion of an HSN heading in the RCM notification does not eliminate the need for proper classification.

This is particularly relevant in the case of:

• Used cooking oil and products falling under Heading 1518;
• Different forms of tyre waste and scrap; and
• Electrical and electronic waste containing multiple materials or components.

Businesses should therefore establish a system that separately identifies:

Nature of goods → Correct HSN classification → Applicable GST rate → Supplier’s GST status → RCM liability

This will help ensure that the RCM liability is not only identified correctly but is also discharged at the correct rate.

5. A Practical Compliance Matrix for the New RCM Entries

Goods	Supplier	Recipient	RCM Applicability	Rate to be Applied
Used cooking oil	Unregistered person	Registered person	Yes	5%, subject to correct classification
Plastic waste and scrap	Unregistered person	Registered person	Yes	18%, subject to correct classification
Tyre waste and scrap	Unregistered person	Registered person	Yes	5%, subject to correct classification
Electrical and electronics waste and scrap	Unregistered person	Registered person	Yes	18%, subject to correct classification

The most important takeaway for businesses is that RCM is not a separate tax rate mechanism. A business must first determine the correct GST rate for the goods and then apply the RCM provisions to determine who is liable to discharge that tax.

6. How Does the RCM Mechanism Work in Practice?

Consider the following example:

A registered recycling company purchases eligible plastic waste and scrap from an unregistered local supplier.

The company should follow the following compliance process:

Step 1: Identify the Goods

Determine whether the goods fall within Heading 3915 and are covered by the RCM entry.

Step 2: Verify the Supplier’s Status

Confirm whether the supplier is registered under GST.

The new RCM entry specifically applies where the supplier is an unregistered person.

Step 3: Determine the Applicable GST Rate

Identify the rate applicable to the particular goods under the relevant rate notification.

Step 4: Calculate and Pay GST

The registered recipient is required to discharge the applicable tax liability under reverse charge.

Step 5: Evaluate ITC Eligibility

After payment of GST under RCM, the recipient may claim Input Tax Credit, subject to fulfilment of the applicable conditions under the GST law.

This demonstrates why an effective RCM system cannot operate only at the return filing stage. The transaction must be correctly identified at the procurement stage itself.

7. RCM Liability and Input Tax Credit

A common misunderstanding is that a business can simply use its existing Input Tax Credit balance to discharge an RCM liability.

GST payable under reverse charge is required to be discharged in accordance with the provisions governing payment of such tax.

Once the tax has been paid, the recipient may be eligible to claim Input Tax Credit, provided all conditions for availment of ITC are satisfied.

The practical compliance cycle is therefore:

Procurement of goods

↓

Identification of RCM applicability

↓

Payment of applicable GST

↓

Claim of eligible Input Tax Credit

For businesses involved in high-volume scrap procurement, this may also have an impact on cash flow and working capital management.

8. The Real Challenge: Procurement Controls

The most significant compliance challenge arising from this amendment may not be the calculation of GST.

The bigger challenge is identifying the transactions covered by RCM.

Businesses should consider strengthening the following controls:

Supplier Master

The GST registration status of suppliers should be properly maintained and periodically reviewed.

Product Classification

Purchase records should contain adequate descriptions of the material procured.

A generic description such as “scrap” may not be sufficient for determining the precise GST treatment.

Purchase Documentation

Businesses should maintain proper records of:

• Nature of goods;
• Date of procurement;
• Supplier details;
• Supplier’s GST registration status; and
• Value of the transaction.

Periodic RCM Reconciliation

A useful internal reconciliation would be:

Purchase Register → Covered Transactions → RCM Liability → Tax Payment → Eligible ITC

This process can help identify missed liabilities before they result in interest or other compliance exposure.

9. RCM Ready Reckoner: Key Categories Businesses Should Review

The new amendment is also a reminder that RCM under GST is not restricted to a few commonly discussed services.

Businesses should maintain an updated RCM checklist covering both goods and services.

Goods

The goods RCM framework includes specified categories notified under Notification No. 4/2017-Central Tax (Rate), as amended from time to time.

Following the latest amendment, businesses dealing in the following newly added categories should specifically review their procurement transactions:

• Used cooking oil;
• Waste and scrap of plastics;
• Waste and scrap of tyres; and
• Electrical and electronics waste and scrap.

The applicability of RCM depends on the conditions specified against each entry.

Services

Businesses should also regularly review commonly encountered RCM categories, including:

• Specified Goods Transport Agency services;
• Legal services supplied by advocates or firms of advocates;
• Specified services supplied by directors to companies;
• Certain services received from Government or local authorities;
• Specified security services; and
• Other services notified under the applicable RCM notification.

The applicability of RCM must always be determined after examining the specific supplier, recipient, nature of supply and conditions prescribed for the relevant entry.

10. Practical Action Points for Businesses

Businesses dealing in waste, scrap or recyclable materials should consider the following immediate steps:

Review Vendor Data

Identify suppliers of the newly notified goods and verify their GST registration status.

Review Product Classification

Ensure that purchase teams and accounts teams use appropriate descriptions and classifications.

Modify Accounting Systems

Create separate accounting or reporting codes for transactions potentially liable to RCM.

Establish a Monthly Reconciliation

Reconcile procurement records with RCM liability and tax payments.

Review ITC Processes

Ensure that tax paid under RCM is appropriately reflected and eligible ITC is claimed in accordance with the GST law.

Conclusion

Notification No. 04/2026-Central Tax (Rate) is a significant development for the recycling and scrap ecosystem.

The amendment brings four additional categories of goods within the reverse charge framework where the supply is made by an unregistered person to a registered person.

The most important takeaway for businesses is that RCM compliance begins at the time of procurement, not at the time of filing the GST return.

A business should build the following questions into its procurement process:

What goods are being purchased?

How are they classified?

Is the supplier registered under GST?

Does the transaction fall under a notified RCM entry?

What GST rate applies to the underlying supply?

For businesses operating in this sector, the right approach would be to review vendor onboarding, product classification and purchase accounting processes before the new provisions become part of regular compliance operations.

RCM is not merely a tax payment provision—it is a transaction-level compliance control mechanism.