Comprehensive tax comparison of Section 194Q TDS, Section 206C(1) TCS, and reverse charge mechanism under Section 9(4) GST for induction furnaces and rolling mills in Urla.
In This Article
3 SectionsMetal Scrap TDS under Section 194Q vs RCM under Section 9(4) GST: Steel Mill Advisory
Steel melting units, rolling mills, and foundry plants across Chhattisgarh (Urla, Siltara, Borai, Hirapur) source thousands of metric tonnes of heavy melting scrap (HMS), turning scrap, and dismantled structural metal monthly. The simultaneous application of TDS under Section 194Q, TCS under Section 206C(1), and GST Reverse Charge Mechanism (RCM) creates intense compliance complexity.
1. Overview of Key Tax Levies on Metal Scrap
| Tax Provision | Statutory Act | Rate | Applicability Trigger |
|---|---|---|---|
| GST Reverse Charge (Sec 9(4)) | CGST Act, 2017 | 18% | Purchase of metal scrap (HSN 7204) from an Unregistered Supplier by a registered steel manufacturing unit. |
| GST Forward Charge (Sec 9(1)) | CGST Act, 2017 | 18% | Purchase of metal scrap from a Registered Supplier (TDS under Section 51 applies if government/PSU buyer). |
| TCS on Scrap (Sec 206C(1)) | Income-tax Act, 1961 | 1% | Sale of scrap by any seller to a trader (unless Form 27C is submitted by an actual manufacturer). |
| TDS on Purchase (Sec 194Q) | Income-tax Act, 1961 | 0.1% | Buyer turnover > ₹10 Cr and cumulative purchases from seller exceed ₹50 Lakhs in the financial year. |
2. How the RCM on Unregistered Scrap Operates
Following statutory amendments to curb circular trading and bogus bill rackets in the scrap industry:
- When a steel furnace buys scrap from local scrap collectors (kabadiwalas) or unregistered entities, the buyer must raise a self-invoice under Section 31(3)(f) and a payment voucher under Section 31(3)(g).
- The 18% GST liability must be discharged in electronic cash ledger only in the monthly GSTR-3B return.
- Input Tax Credit (ITC) can be claimed in the same month's GSTR-3B return, provided the underlying metal is utilized in the manufacture of taxable goods (billets/ingots).
3. Form 27C Exemption Mechanics for Manufacturing Plants
A registered induction furnace or casting plant buying scrap for in-house melting is entitled to purchase scrap without 1% TCS by providing a statutory declaration in Form 27C:
- The mill executes Part-I of Form 27C declaring that the scrap will be used solely for manufacturing/processing.
- The seller uploads the verified declaration to the Income Tax TRACES portal within 7 days of the following month.
- Once Form 27C is executed, the buyer applies Section 194Q TDS (0.1%) on purchases exceeding ₹50 Lakhs instead.
For specialized industrial tax audits, ITC reconciliation, and GST scrutiny defense in Urla and Siltara, contact our GST & Corporate Practice.
Authored by CA Rabi Agrawal & Practice Team
Rabi Agrawal & Associates, Chartered Accountants — Head Office Raipur (CG), Branch Office Jayapatna (Odisha).