GST on sale of scrap and waste materials

Introduction:

Though the sale of scrap or waste materials is liable to tax but the term “Scrap” is nowhere defined under the GST Laws. In such a situation, we can derive the meaning of ‘scrap’ as per the normal business or commerce parlance. As per the business dictionary, “scrap” means “waste that either has no economic value or only the value of its basic material content recoverable through recycling.”

In the erstwhile excise regime, the scrap or waste was subjected to a test of “manufacture” or “marketability” for their taxability. But after the introduction of GST Laws, the waste and scrap don’t have to pass the test of “manufacture” or “mechanical process” or “marketability”. Scrap is a taxable supply under GST.

Valuation of scrap for GST

For the purpose of determination of the value of supply in respect of scrap or waste, Tax collected at Source (TCS) under the provisions of Income Tax Act, 1961 shall not be includible. It means that GST shall be chargeable on the Basic Invoice Value without considering TCS. However, while calculating TCS u/s 206(C)(1) of the Income Tax Act, 1961, TCS shall be collected on the value inclusive of GST.

GST rates on scrap & waste

Different types of scrap or waste emerge in various industries. Therefore, different HSN codes and rates are applicable to different types of scrap based on the nature of scrap. Finding proper HSN code and GST rates is a complicated task. In this article, HSN code and GST rates on different types of scrap & waste material are summarized.

 GST Rate Chart for Scrap Materials

Note: a) e-waste means electrical and electronic equipment listed in Schedule I of the E-Waste (Management) Rules, 2016, published in the Gazette of India vide G.S.R. 338 (E) dated the 23^rd March 2016, including the components, consumables, parts, and spares which make these products operational.

b) The HSN code for some of the scrap items has not yet been notified. So, we can cover these items in the residuary entry 453 of Schedule III of Notification No. 01/2017- Central Tax (Rate) dated 28^th June 2017.

Online GST Registration

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GST on sale of scrap or waste by Government Departments

In this respect, we will refer to Circular No. 76/50/2018- GST dated 31st December 2018 which provides clarification on issues in respect of the sale of used vehicles, seized and confiscated goods, old and used goods, waste, and scrap by Government departments.

Whether the supply of used vehicles, seized and confiscated goods, old and used goods, waste, and scrap by Government departments are taxable under GST?

Yes, intra-state and inter-state supply of used vehicles, seized and confiscated goods, old and used goods, waste, and scrap made by the Central Government, State Government, Union Territory, or local authority is a taxable supply under GST.

Whether the sale of scrap or waste by Government departments taxable under the reverse charge mechanism or not?

GST on sale of scrap or waste to a registered person

Vide Notification No. 36/2017- Central Tax (Rate) and Notification No. 37/2017- Integrated Tax (Rate) both dated 13.10.2017, it has been notified that intra-state and inter-state supply respectively of used vehicles, seized and confiscated goods, old and used goods, waste and scrap by the Central Government, State Government, Union Territory or a local authority to any registered person, would be subject to GST on reverse charge basis as per which tax is payable by the recipient of such supplies.

Also Read the following Caselaw on a similar issue: https://www.taxwink.com/blog/composition-dealers-purchasing-scrap-vehicles-from-government-authorities-liable-for-gst-on-rcm-basis

GST on sale of scrap or waste to unregistered person

• It should be noted that supply of used vehicles, seized and confiscated goods, old and used goods, waste, and scrap by the Central Government, State Government, Union Territory, or a local authority to an unregistered person is also a taxable supply under GST.
• In this regard, it is clarified by Circular No. 76/50/2018- GST that the respective Government departments (i.e. Central or State Government, Union Territory, or local authority) shall be liable to get registered and pay GST on such intra-state or inter-state supply of aforesaid goods made by them to unregistered person.
• Thus, GST shall be liable to be paid by the Government Departments under forward charge mechanism.

Refer Circular at following link:

https://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular-No-76.pdf;jsessionid=D3E891D2B1697759E9CAA9F63626AE57

Disclaimer: The above article is based on the personal opinion of the author and is meant for informational purposes only. Readers are requested to act diligently and under consultation with an expert before applying the information contained in this article. Further, the GST rates are subject to change so GST rate should be verified before using the same.