GST TDS Made Applicable to Metal Scrap Supplies – A Complete Comprehensive Thesis

The implementation of Tax Deducted at Source (TDS) under the Goods and Services Tax (GST) regime represents a significant shift in how the government monitors and enforces compliance among suppliers and buyers of goods and services. When TDS is made applicable to metal scrap supplies, it creates a direct compliance link between buying entities and tax authorities, ensuring accurate reporting, timely tax collection, and plugging leakages in a sector known historically for informal transactions. The scrap industry—covering ferrous, non-ferrous, e-waste, and secondary raw materials—has long been characterized by fragmented supply chains, cash-driven trade practices, and under-reporting of turnover. Applying GST TDS to this sector reinforces the government’s approach to formalizing the circular economy and strengthening audit trails.

Background and Evolution

GST TDS was introduced to create self-regulating checkpoints in the flow of taxable supplies. Under this system, specific notified entities must deduct TDS at a prescribed rate while making payments to suppliers. While traditionally applicable to works contracts and government-related procurements, extending TDS to metal scrap supplies marks a shift toward greater coverage of high-risk industries. Scrap transactions often involve multiple intermediaries and rapid recycling cycles, making real-time tax capture challenging. By mandating TDS, the government obtains near-instant data on supply volumes, supplier identities, and value flows, contributing to improved tax governance.

Rationale for Implementation

Metal scrap is a commodity with high resale value and is widely used by steel, manufacturing, automobile, and engineering sectors. However, the sector has historically exhibited issues such as:

• Under-invoicing of supplies
• Use of unregistered suppliers
• Cash-based procurement
• Fragmented supply chain with limited documentation
• Difficulty in tracking secondary movement of goods

By enforcing GST TDS, the government aims to:

• Increase reporting accuracy
• Prevent tax evasion and fake invoicing
• Ensure suppliers remain compliant and registered
• Encourage digital payments and invoice matching
• Build a transparent ecosystem for recycling and waste management

The measure aligns with national objectives of sustainability, circular economy, and formalization of micro-scale scrap dealers.

TDS Rate and Valuation

TDS under GST on metal scrap supplies is typically deducted at 1% (0.5% CGST + 0.5% SGST or 1% IGST) when the supply is made to a notified deductor. The deduction applies only to the taxable value of the supply, excluding GST components. This ensures that the tax deducted corresponds purely to the goods’ intrinsic value. Scrap supplies usually involve varying price structures depending on metal quality, impurities, moisture content, and processing requirements, making accurate valuation essential. TDS brings discipline to pricing and invoice documentation, reducing disputes and ensuring consistency in reporting.

Conditions for Applicability

The applicability of GST TDS to metal scrap depends on several conditions:

• a. The Buyer Must Be a Notified TDS Deductor
  Government bodies, public sector undertakings, local authorities, and other notified entities are mandated to deduct TDS. When such entities procure metal scrap from registered suppliers, TDS becomes compulsory.
• b. Supplier Must Be a Registered Taxpayer
  GST TDS applies only when the supplier is registered under GST. Scrap dealers operating below threshold limits may not fall under TDS if they remain unregistered, although businesses increasingly prefer sourcing from registered suppliers for ITC and compliance benefits.
• c. Taxable Supply Threshold
  TDS is required if the value of an individual contract or supply exceeds the specified threshold, ensuring administrative efficiency and avoiding over-compliance on minor purchases.
• d. Nature of Supply and Movement
  Whether the scrap supply is intra-state or inter-state determines the division between CGST-SGST or IGST deduction. Proper classification of supply becomes vital to avoid mismatches.

Impact on Scrap Suppliers

Introducing TDS has several effects on scrap suppliers:

• a. Enhanced Compliance Requirements
  Suppliers must now maintain accurate invoices, ensure timely GST filing, and reconcile TDS entries appearing in their GST portal. Non-compliant suppliers risk payment delays as TDS credit may not reflect properly.
• b. Improved Cash Flow Tracking
  Although TDS reduces the immediate cash inflow by a marginal percentage, it increases trust in the sector, ensures formal payments, and strengthens creditworthiness with banks and financial institutions.
• c. Encouragement for Formalization
  Small scrap dealers who were operating informally are incentivized to register under GST to work with larger government and corporate buyers. This results in improved regulation, documentation, and market stability.

Impact on Buyers Procuring Metal Scrap

For buyers, especially industries and public sector units, the application of GST TDS presents key compliance responsibilities:

• Deducting and depositing TDS within the prescribed time
• Issuing TDS certificates to suppliers
• Reporting deductions accurately in GST returns
• Ensuring correct classification of goods under metal scrap categories
• Avoiding mismatches that could affect supplier ITC claims

Corporate buyers benefit from improved accountability in the supply chain and reduced exposure to non-compliant vendors.

Prevention of Tax Evasion and Circular Trading

The scrap industry has been vulnerable to multiple forms of tax evasion, including:

• Circular trading using fake invoices
• Claiming ITC without actual movement of scrap
• Misclassification of goods
• Selling without invoices

GST TDS acts as a deterrent because:

• Every supply to a notified buyer is traceable
• Supplier identity and registration details are verified instantly
• Mismatches in return filings are automatically flagged
• Fake chains of transactions are easier to detect

TDS creates a digital trail that ensures scrap movement aligns with reported transactions.

Compliance Procedure for GST TDS on Scrap Supplies

Buyers must follow a structured compliance mechanism:

• Verify supplier GST registration
• Ensure the supply falls under metal scrap classification
• Deduct TDS at the time of making payment
• Deposit TDS to the government within the prescribed timeline
• File periodic TDS returns under GST
• Issue TDS certificate to suppliers
• Reconcile TDS entries during return preparation

Suppliers, in turn, must accept and reconcile the TDS credit appearing in their GST portal and adjust it against their tax liabilities.

Challenges and Practical Issues

Although beneficial in the long run, the implementation of TDS on scrap supplies presents practical challenges:

• a. Complexity in Identifying Scrap Category
  Metal scrap classification may vary across industries, creating ambiguity for buyers.
• b. Increased Administrative Burden
  Scrap supplies often involve numerous small transactions requiring careful tracking.
• c. Disputes on Taxable Value
  Moisture content, impurities, and weight variations can complicate valuation.
• d. Compliance Delays by Suppliers
  Smaller suppliers may face difficulty understanding TDS processes, which can delay reconciliations.

Long-Term Benefits for the Scrap Ecosystem

Despite initial complexities, GST TDS ushers in long-term structural improvements:

• Enhances transparency and credibility of the scrap sector
• Encourages digital record-keeping
• Makes scrap trading more compliant and standardized
• Supports circular economy initiatives
• Reduces opportunities for fake invoicing and tax fraud
• Helps manufacturing and steel industries rely on verified suppliers

The measure ultimately fosters a more regulated and sustainable scrap market.

The applicability of GST TDS to metal scrap supplies marks a strategic reform aimed at formalizing a historically fragmented sector. By imposing a small but powerful compliance barrier, the government improves transparency, enhances data accuracy, and curbs tax evasion. Both scrap suppliers and industrial buyers experience stricter yet beneficial compliance structures that strengthen business integrity. Over time, GST TDS is expected to elevate operational discipline, improve revenue collection, and integrate the scrap supply chain into India’s formal tax ecosystem. This reform not only promotes fiscal transparency but also contributes to broader economic and environmental goals through better-regulated recycling processes.