GST on Discounts or Incentives Given After Supply - Sec 15(3)(CGST Act, 2017
Scope
The amendments introduced in the 54th GST Council Meeting impact the metal scrap industry by mandating specific compliance requirements for GST under Reverse Charge Mechanism (RCM) and Tax Deducted at Source (TDS).
Effective from October 10, 2024, these changes affect purchases from both registered and unregistered suppliers of metal scrap. Key regulations are covered under Notifications No. 06/2024 CT(Rate) and No. 25/2024 (CT), targeting improved compliance and tax accountability in the sector. The amendments outline when buyers are required to deduct TDS or pay GST under RCM based on supplier registration status.
AMENDMENTS
These amendments involve the additional compliance burdens and tax obligations placed on buyers in the metal scrap industry.
On scrap purchases from unregistered suppliers, buyers must pay GST directly under the RCM at applicable rate, generating a self-invoice within 30 days. RCM is applicable on purchase of goods under chapter no. 72 to 81 of Customs Tariff Act 1975.
On scrap purchases from registered suppliers necessitate a TDS deduction at 2% (CGST and SGST 1% each) u/s 51 if the contract value exceeds Rs. 2.5 lakh. The deduction is required on purchase of goods under chapter no. 72 to 81 of Customs Tariff Act 1975, on the value excluding GST.
This differentiation in compliance requirement may create complexity, especially for smaller businesses or those with frequent scrap transactions, requiring accurate self-invoicing, TDS deduction, and timely filing of returns.
For instance, a registered buyer purchases Rs. 3 lakh worth of scrap from:
a. an unregistered supplier, Under RCM, the buyer pays 18% GST (Rs. 54,000) and self-invoices the transaction.
b. a registered supplier, the buyer would deduct 2% TDS (Rs. 6,000) as per the amended TDS requirements, and file GSTR-7 by the 10th of the next month.
Action
The action section outlines steps to ensure compliance and avoid associated risks:
- To ensure compliance, buyers should carefully determine the nature of goods they are dealing in and supplier’s registration status before transactions.
- Scrap purchases are covered in abovementioned chapter headings
- If TDS provisions are applicable apply for GST TDS registration separately even if already registered as taxpayer.
- Set up internal systems to issue self-invoices promptly, manage RCM and TDS payments, and adhere to monthly return filing deadlines.
- Regular audits of RCM and TDS processes can further minimize risks.
Risk
Risks include potential non-compliance if buyers fail to self-invoice or delay TDS filings. Penalties and interest for delayed payments and filing. RCM and TDS payments are neutral in nature in most cases as ITC is available for RCM and cash credit is available to recover on TDS deductions. Payment after due dates may result in additional cost.
CA Mahipal Sharma | Partner | FCA | CISA | B.Com
Contact: +91 7023030160 | email: mahipal013@gmail.com
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