GST Compliance for Metal Scrap Dealers

India’s metal scrap industry is an essential part of the nation’s recycling and circular economy, supplying crucial raw materials to the steel, aluminium, and copper industries. With the Goods and Services Tax (GST) framework evolving steadily, understanding the GST implications and compliance requirements for metal scrap dealers is key to running a legally sound and profitable business.

As of FY 2025–26, the GST regime for scrap trade continues to emphasize formalization, invoice-based transactions, and input tax transparency. Let’s understand the current GST rate on metal scrap, how it is taxed, and what compliances are mandatory for dealers. 

1. GST Applicability on Metal Scrap

Under the GST Act, metal scrap is classified as a taxable supply of goods. The GST rate depends on the metal type and its corresponding HSN code under the Customs Tariff Act.

Key takeaway:

✅ All ferrous and non-ferrous metal scrap attracts 18% GST.
✅ Scrap of gold, silver, and platinum group metals is taxed at 3%.

2. GST Registration Requirement for Scrap Dealers

A metal scrap dealer must obtain GST registration if:

• Aggregate turnover in a financial year exceeds ₹ 40 lakh (₹ 20 lakh in special category states), or
  
  
• The dealer makes inter-state supplies, or
  
  
• Supplies goods to Government departments liable under reverse charge, or
  
  
• Is required to deduct or collect TDS/TCS under GST provisions.

After registration, the dealer must issue GST-compliant tax invoices, charge GST on outward supplies, and file periodic returns.

3. Reverse Charge Mechanism (RCM) Applicability

The Notification No. 06/2024-Central Tax (Rate), issued on October 9, 2024, brings specific changes for the supply of metal scrap. 

Registered businesses dealing with metal scrap must now comply with the reverse charge system.

When a metal scrap supplier is unregistered and he supplies to a registered entity, the recipient (buyer) will be liable to pay tax under RCM.

4. Input Tax Credit (ITC) on Scrap Purchases

Scrap dealers are eligible to claim ITC on GST paid on purchases of scrap, subject to Section 16 and 17 of the CGST Act.

Conditions for availing ITC:

• Dealers must be registered under GST.
  
  
• Suppliers must issue a valid tax invoice containing GSTIN and HSN.
  
  
• Goods must be received and used for business.
  
  
• Supplier must have filed GSTR-1 & GSTR-3B, reflecting the invoice in GSTR-2B.
  
  
• Payment to the supplier must be made within 180 days.

However, ITC cannot be claimed for:

• Scrap used for personal purposes or exempt supplies.
  
  
• Blocked credits under Section 17(5), such as for motor vehicles or construction materials.

5. GST Compliance Requirements for Scrap Dealers

To stay compliant under the latest GST rules (as of FY 2025–26), metal scrap dealers must adhere to the following obligations:

(a) Invoicing

• Must issue a tax invoice with GSTIN, invoice number, date, buyer details, HSN, rate, and value.
  
  
• E-Invoicing is mandatory for businesses with annual turnover above ₹ 5 crore (effective August 2023, per CBIC Notification 10/2023).

(b) E-Way Bill

• Required for movement of scrap goods worth ₹ 50,000 or more.
  
  
• Must include correct vehicle number, transporter ID, and invoice details.

(c) Return Filing

Scrap dealers must file:

(d) TDS on Metal Scrap Supplies

As per recent notifications, registered buyers purchasing metal scrap above ₹ 2.5 lakh from dealers must deduct TDS @ 2% (1% CGST + 1% SGST) on the taxable value and deposit it via GSTR-7.

(e) Record-Keeping

Dealers must maintain:

• Purchase and sales registers
  
  
• Input/Output GST ledgers
  
  
• Stock registers and transport records
  
  
• E-way bills and invoices (digitally or physically for 6 years)

6. Common Challenges for Scrap Dealers under GST

1. Fake invoicing and ITC mismatch due to purchases from non-compliant suppliers.
   
   
2. Wrong HSN classification, especially when dealing in mixed-metal scrap.
   
   
3. ITC reversal for unpaid invoices beyond 180 days.
   
   
4. E-way bill errors during transport leading to penalties.
   
   
5. Non-filing by counterparties, blocking ITC in GSTR-2B.

Scrap dealers should regularly reconcile purchase registers with GSTR-2B and use GST-compliance softwares like Cashflo.

Conclusion

The GST framework for the metal scrap industry is designed to promote transparency and accountability across the recycling value chain. While the rate remains 18% for most scrap materials, compliance requirements especially in areas like e-invoicing, RCM, ITC validation, and TDS are now more strictly enforced.

For metal scrap dealers, staying GST-compliant means not just avoiding penalties but also gaining business credibility and smoother transactions with industrial buyers and recyclers. With the government’s increasing focus on the formalization of the scrap economy, every dealer should ensure that their billing, filing, and documentation are 100% aligned with the latest GST Act and Rules.