A New Era for India’s Recycling Industry – Goods and Services Tax (GST)  Council’s Bold Announcements on Metal Scrap

By Sandeep Dahiya, Guest Author, Director Advocacy and Communication, Pure Earth

Read: Govt Announcement

India’s recycling industry is poised for a seismic shift. The 54th GST Council meeting on September 9, 2024, introduced landmark announcements aimed at formalizing the scrap metal sector/battery recycling, including Reverse Charge Mechanism (RCM) and 2% Tax Deducted at Source (TDS) on scrap metal transactions. These reforms are not just about taxes—they signify a broader push to clean up a sector long dominated by informal, often hazardous, practices. For organizations like Pure Earth, which are dedicated to mitigating toxic pollution, these new announcements signal a critical opportunity to curtail environmental degradation while formalizing the sector. We have been advocating with a wide range of stakeholders for many years, and seeing the efforts resulting in these announcements from the 54th GST Council meeting are very encouraging.

The Environmental Significance

The informal lead recycling industry has long been a significant environmental challenge in India. Informal recyclers often operate without adequate pollution controls, leading to hazardous levels of lead emissions into the environment. By imposing the RCM and TDS measures, the GST Council is making it harder for informal recyclers to thrive, thus encouraging the adoption of cleaner, safer, and regulated recycling practices.

Key GST Reforms: RCM and TDS

Reverse Charge Mechanism (RCM)
Under the RCM, when registered buyers purchase metal scrap from unregistered suppliers, the responsibility for paying GST shifts to the buyer. This provision ensures that unregistered, often informal, suppliers no longer enjoy a cost advantage over formal, GST-registered recyclers by evading taxes. Now, registered buyers must calculate the applicable GST and pay it directly to the government.

This policy directly affects unregistered, often informal recyclers who have evaded taxes for years. By enforcing RCM, the government removes the unfair cost advantage these informal players had over formal, compliant recyclers, thus pushing them to formally register, and follow the environmental and other standards. By enforcing RCM, the government is aiming to curb the dominance of the informal recycling sector, which has historically evaded GST payments. This mechanism incentivizes formal recycling units by leveling the competitive playing field, ensuring that environmental standards and tax compliance are uniformly followed.

Example: A registered recycler buys ₹100,000 worth of scrap metal from an unregistered supplier. Under RCM, the recycler will calculate and pay ₹18,000 in GST directly to the government.

TDS on Scrap Metal Transactions
Registered buyers must now deduct 2% TDS from the total invoice amount on transactions with other registered businesses. The buyer will pay the deducted amount to the government, and the seller can claim this credit against their tax liabilities. This initiative ensures better traceability of financial transactions, discourages underreporting and builds transparency in the supply chain.

Example: If a recycler purchases ₹500,000 worth of metal scrap, ₹10,000 is deducted as TDS and paid to the government. The seller will receive ₹490,000 and can claim the ₹10,000 when filing their GST returns.

Impact on the Informal Recycling Sector

The informal recycling sector, particularly in lead recycling, has long been a source of concern. These operators often fail to adhere to environmental standards, releasing hazardous levels of lead into the environment, and operating outside formal tax regimes.

With the RCM and TDS mechanisms, the government effectively cuts off the tax-free benefits enjoyed by informal recyclers, incentivising their shift towards formal operations. This can lead to:

• Better environmental compliance: Formal recyclers adhere to environmental guidelines, reducing lead pollution and other toxic emissions.
• Improved worker safety: Informal recyclers often neglect worker safety. Formalizing the sector ensures adherence to workplace safety regulations.
• A level playing field: Registered recyclers, who were previously at a cost disadvantage due to tax evasion by informal players, can now compete fairly.

New Environmental Standards: Raising the Bar

In addition, the Central Pollution Control Board (CPCB) has also issued new SOPs guidelines for the environmentally sound handling of Used Lead Acid Batteries (ULABs).

The CPCB’s guidelines also emphasize worker safety, recommending annual lead level testing in workers’ blood and urine. Workers with blood lead levels exceeding 42 micrograms per deciliter must be removed from lead-related work and treated until their levels drop to 10 micrograms per deciliter.

What’s Next?

The changes introduced by the GST Council and CPCB are significant, but they require consistent enforcement, industry-wide adoption and continued monitoring:

• Expand Awareness Campaigns: There’s a pressing need to educate informal recyclers on the benefits of formalization and compliance. Collaborating with local governments and industry associations to conduct training and outreach programs.
• Strengthen Enforcement: Regulators must ensure these new rules are enforced uniformly across the country and informal recyclers are complying well with new norms.
• Encourage Innovation in Recycling: Investments in clean technology should be incentivised to promote safer and more sustainable recycling practices. Reducing lead and metal toxicity in the environment is critical for public health.

These changes could spell the beginning of the end for informal, environmentally damaging scrap recycling. By requiring compliance with tax norms and discouraging unregulated recycling operations, the GST Council is not only ensuring greater tax revenue but also pushing the industry towards safer, more sustainable practices.

At Pure Earth, we welcome these changes and look forward to the positive impact this formalization will have on India’s lead and metal recycling sectors. While we celebrate these steps but at the same time we also recognise there is much work ahead. We remain committed to working with the government, industry, and communities to reduce toxic exposure and foster safer, healthier environments.

Let’s continue pushing for a cleaner, healthier India.