Reverse Charge Mechanism (RCM) for Metal Scrap Recipients

[Tushar Malik]

Introduction: Notification No. 06/2024-Central Tax (Rate), dated 8th October 2024, introduces a crucial update in the GST compliance framework by enforcing the Reverse Charge Mechanism (RCM) for registered recipients procuring metal scrap from unregistered suppliers. This reform is intended to strengthen tax compliance in the metal scrap industry.

Key Provisions of the Notification:

1. Reverse Charge Mechanism (RCM) on Metal Scrap from Unregistered Suppliers:
   • The notification stipulates that registered recipients purchasing metal scrap classified under Chapters 72 to 81 of the Customs Tariff Act, 1975, from unregistered suppliers must discharge GST liability under RCM.
   • This means that if a registered buyer acquires metal scrap from an unregistered supplier, the buyer must self-assess and remit GST on the transaction.
2. Applicability to Registered Recipients Only:
   • This provision is applicable solely to registered recipients procuring metal scrap from unregistered suppliers.
   • It does not extend to purchases made from another registered supplier.
   • This mechanism ensures GST collection through the recipient under RCM, even if the supplier is not registered.
3. Applicable Metal Scrap under Chapters 72 to 81:
   • The metal scrap covered under these chapters includes various base metals such as iron, steel, copper, aluminum, zinc, tin, and others.
   • If such scrap is obtained from unregistered suppliers, the recipient must adhere to RCM provisions.
4. Rate of Tax under RCM:
   • The recipient is obligated to pay GST at the standard rate applicable to the specific type of metal scrap (typically 18%) directly to the government.
   • The recipient is entitled to claim Input Tax Credit (ITC) on the same amount.

Objectives Behind the Notification:

1. Preventing Tax Evasion:
   • The metal scrap sector has historically been prone to tax evasion, particularly in dealings with unregistered suppliers.
   • By shifting tax liability to registered recipients under RCM, the government ensures GST compliance, even when the supplier is unregistered.
   • This approach helps curb tax leakage, as the registered buyer assumes the responsibility for tax remittance.
2. Encouraging Supplier Registration:
   • Introducing RCM on purchases from unregistered suppliers serves as an incentive for suppliers to register under GST.
   • Unregistered suppliers impose an additional compliance burden on buyers, potentially affecting business prospects.
   • This initiative aims to increase the number of registered entities, thereby improving tax compliance across the sector.
3. Ensuring Compliance and Accountability:
   • Registered recipients are typically more compliant with tax regulations and better equipped to handle the procedural aspects of RCM.
   • The government seeks to allocate the compliance responsibility to entities that can effectively fulfill these obligations, ensuring continuous tax collection even in transactions involving unregistered suppliers.
4. Formalizing the Metal Scrap Industry:
   • The metal scrap sector often involves transactions between unregistered suppliers and larger registered buyers.
   • By making registered recipients accountable for tax payment under RCM, the government aims to foster a more structured and formalized industry, enhancing overall tax transparency.