Introduction
Manufacturing processes generate scrap and waste. Metal scrap, plastic scrap, paper waste, and other by-products are common. The question arises: How are scrap and waste sales treated under GST?
The answer is that scrap sales are taxable supplies and attract GST. This guide explains the applicable GST rates, HSN codes, and ITC implications.
Legal Framework: GST on Scrap Sales
Scrap as Taxable Supply
The GST Act does not define "scrap," but the supply of all scrap types is taxable. Scrap is no longer required to go through a taxability test at the manufacturer's point.
GST Rates on Scrap
- Iron and Metal Scrap: 18% GST under HSN 7204.
- Plastic Scrap: 18% GST under HSN 3915.
- Paper and Rubber Scrap: 5% GST.
HSN Codes for Common Scrap Types
- Iron Scrap: HSN 7204
- Plastic Scrap: HSN 3915
- Aluminium Scrap: HSN 7602
- Copper Scrap: HSN 7404
- Paper Scrap: HSN 4707
ITC Implications
ITC on Inputs
Where the inputs on which ITC was claimed are used in the manufacturing process and generate scrap, the ITC is not required to be reversed on the scrap generated. The scrap sale is a separate taxable supply.
ITC on Scrap Sales
The manufacturer must charge GST on the scrap sale and report it in GSTR-1.
Reverse Charge on Scrap
Under Notification No. 04/2024-Central Tax (Rate), the supply of metal scrap by a registered person to a registered person is subject to reverse charge if the supplier is a registered person and the buyer is a registered person. The buyer must pay GST under RCM.
Documentation Required
- Tax Invoice: Invoice for the scrap sale.
- Weighbridge Slips: Documentation of the scrap quantity.
- E-Way Bill: For movement of scrap above ₹50,000.
Best Practices
- Charge Correct GST Rate: Apply the correct GST rate based on the scrap type.
- Report Scrap Sales: Report all scrap sales in GSTR-1.
- Comply with RCM: Pay GST under RCM where applicable.
- Maintain Records: Document all scrap sales.
- Seek Professional Assistance: For complex scrap transactions, seek guidance.
Conclusion
Scrap and waste sales are taxable supplies under GST. Iron and plastic scrap attract 18% GST; paper and rubber scrap attract 5%. The reverse charge mechanism applies to metal scrap. Proper documentation and reporting are essential.
Selling manufacturing scrap? Anuj Desai & Associates provides expert guidance on GST rates and compliance. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
- Phone: 9619456656
- Website: https://anujdesaiassociates.com
- LinkedIn: linkedin.com/in/ca-anuj-desai-122547230