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Steel Scrap Industry Asks Govt To Rationalise GST Structure

The Induction Furnace sector contributes nearly 35 per cent to the total steel production in India

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All India Induction Furnaces Association (AIIFA) along with regional industry associations across the country gathered in New Delhi on Thursday to request the Centre to rationalise the GST structure on metal scraps stating it as a pressing issue for the iron and steel sector in India.

The GST Council's next meeting is expected to take place in February. 

The Induction Furnace sector contributes nearly 35 per cent 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 Governing 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.

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, Sudhir Goyal, Member, All India Induction Furnaces Association (AIIFA), stated “the Induction Furnace industry with over 35 per cent 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 an 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," he added.

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.

Himachal Pradesh Steel Industries Association’s President, Megh Raj Garg said, “The proposed changes will not impact the revenue of the Government. Instead, it will increase tax collections. The industry will also become more organised and get relieved from the malpractice of claiming fraudulent input tax credits. 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."

The attendees asked the government to consider the target set in the NSP-2017 and the trend to increase steel production through scrap.

It is noteworthy that the iron and steel sector is strategically an important sector for India, contributing 2 per cent to the overall national GDP and providing ample employment opportunities. India is already the third 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.