GST on Iron & Steel — Ore 5%, Steel Products 18%, Scrap RCM

IRON ORE 5% vs STEEL 18% — NO INVERSION PROBLEM: STRUCTURE: Iron ore (input): 5% GST. Coal/coke (input): 5% GST. Steel (output): 18% GST. ITC FLOW: Steel maker buys ore at 5% → gets ITC of 5%. Sells steel at 18% → pays 18% output. Net payment: 18% - 5% = 13% on value addition. This is NORMAL (output > input rate) — no inversion. WHAT INVERSION WOULD BE: If ore was 18% and steel was 5% → steel maker accumulates ITC (pays more on input than collects on output). That's NOT the case here. Steel sector has FAVORABLE structure: low-rate inputs, standard-rate outputs. REAL BENEFICIARIES: Pre-GST: steel had excise 12.5% + VAT 5% + CST 2% + entry tax + octroi = ~20-22% effective. Post-GST: 18% flat with full ITC chain. NET SAVING: 2-4% for steel industry from GST. Plus: elimination of CST on interstate movement (India's steel moves across 5-6 states from mine to consumer). INDUSTRY DEMAND — 12% GST ON STEEL: Steel associations demand 12% GST (currently 18%). Arguments: (1) steel is essential infrastructure input, (2) housing cost reduction, (3) global competitiveness. Government resistance: steel at 18% generates ₹40,000-50,000 crore annually. Moving to 12% = ₹15,000 crore revenue loss. Compromise unlikely in near term. MSME IMPACT: Small steel fabricators (gates, grilles, furniture): buy at 18%, sell at 18% — no issue. But their CUSTOMERS (individual consumers) can't claim ITC. So: steel fabrication for homes = 18% final cost (no ITC for homeowner). If steel was 12%: homeowner saves 6% on gates, grilles, railings.

RCM ON SCRAP — STEEL SECTOR SPECIFIC: THE PROBLEM (pre-RCM): India's secondary steel sector uses 30-40 MT scrap/year. Scrap collected by: kabadiwallas, demolition contractors, household scrap dealers — 95% UNREGISTERED. Unregistered suppliers: no GST number → no GST charged → no GST paid to government. Steel mills buying scrap: no ITC available (supplier didn't charge GST). Result: ₹15,000-20,000 crore scrap market → ZERO GST collection. THE SOLUTION — REVERSE CHARGE (Notification 43/2017): When REGISTERED person buys scrap from UNREGISTERED person: Buyer (steel mill) pays 18% GST under RCM. Buyer reports in GSTR-3B under 'RCM liability'. Buyer claims SAME 18% as ITC (in same return). NET CASH IMPACT ON BUYER: Liability: +18%. ITC: -18%. Net: ZERO (cash flow neutral — pay and claim in same month). BUT: (1) Must have cash to pay RCM (before claiming ITC). (2) Compliance burden (filing, documentation). (3) Payment proof required (can't buy on undocumented basis). WHY GOVERNMENT BENEFITS: Every scrap purchase now DOCUMENTED. E-way bill generated for movement. Buyer's purchase matches with their output (TMT bars). Trail: ore → steel → scrap → re-melting → TMT → construction. Entire chain now visible. EVASION REDUCTION: Before RCM: scrap dealers operated 100% in cash, no trail. After RCM: buyer must report purchase → creates audit trail. Government can verify: 'You produced 1000 MT TMT but only bought 200 MT scrap? Where's the rest?' Cross-matching of input-output ratios catches under-reporting. PRACTICAL ISSUES: (1) Kabadiwalla won't give proper invoice → buyer must self-invoice (Section 31(3)(f)). (2) Payment must be through banking channel (> ₹10,000). (3) TDS under Section 194Q (Income Tax) also applies on scrap purchases > ₹50 lakh/year.

STEEL + CONSTRUCTION — THE ITC BLOCKAGE CRISIS: THE STRUCTURE: Steel sold to builder: 18% GST → builder gets ITC. Builder sells flat: 5% GST (under-construction, non-affordable) WITHOUT ITC. OR: 1% GST (affordable housing) WITHOUT ITC. RESULT: Builder paid 18% on steel (major construction input — 25-30% of cost). Cannot claim ITC (5%/1% scheme = no ITC by design). Steel GST becomes COST → passed to homebuyer. QUANTIFICATION: Typical 1000 sq ft flat: ₹30-40 lakh (metro city). Steel used: ~5-7 tonnes. Steel cost: ₹3-4.5 lakh. GST on steel: ₹54,000-81,000 (18%). This ₹54,000-81,000 EMBEDDED in flat price (not recoverable). Total blocked ITC on all inputs (steel + cement + fittings): ₹3-5 lakh per flat. HOME BUYER IMPACT: Pre-GST: builder could claim excise credit on steel (CENVAT). Post-GST (after March 2019 notification): NO ITC on any input for residential projects. Net increase to homebuyer: 3-5% of flat cost attributable to blocked ITC. BUILDER'S DILEMMA: Option A: 5% without ITC (simple, lower rate but cost absorption). Option B: Old scheme 12% with ITC (grandfathered — only for projects started before April 2019). Most new projects: mandatorily 5%/1% without ITC. ITC reversal if project started under old scheme and transitioned. COMMERCIAL CONSTRUCTION: Commercial buildings (office, mall, factory): 18% GST on construction (works contract). Full ITC available on steel inputs. Commercial real estate: NO blockage issue. Only RESIDENTIAL has the ITC problem. INDUSTRY DEMAND: Allow ITC in residential construction with higher output rate (say 12% with ITC). Government: 5% without ITC is simpler (no ITC tracking, no disputes). Stalemate continues — no change expected soon. CEMENT SAME ISSUE: Cement at 28% → blocked in residential construction. Combined steel (18%) + cement (28%) blocked ITC = ₹4-6 lakh per flat.

STEEL EXPORTS — ZERO-RATED + REFUND: EXPORT OF STEEL: Zero-rated supply (IGST rate = 0% on export). Two options: (1) Export under LUT (Letter of Undertaking): no IGST paid → claim refund of accumulated ITC (Rule 89). (2) Export with IGST payment: pay IGST → claim refund of IGST paid. MOST STEEL EXPORTERS: Use LUT route (no upfront IGST payment). Claim refund of ITC accumulated on: iron ore (5%), coal (5%), electricity (outside GST but no credit), services (18%). REFUND TIMELINE: Typical refund: 60-90 days for steel sector. Large exporters (Tata Steel, JSW, SAIL): ₹500-1,000 crore quarterly refunds. INVERTED DUTY REFUND: Some steel products have inverted duty (input 18% > output 5% — e.g., steel used in coach manufacturing at 5%). Refund formula (Rule 89(5)): considers turnover of inverted rated supplies. STEEL IMPORTS: Basic Customs Duty (BCD): 7.5-15% (varies by product). IGST on imports: 18% (on assessable value + BCD). Social Welfare Surcharge: 10% of BCD. Total landed cost: BCD + SWS + IGST = 28-35% on imported steel. ITC on IGST: fully available to importer. ANTI-DUMPING DUTY (ADD): India imposes ADD on steel from China, Korea, Japan, EU. ADD is SEPARATE from GST. ADD: ₹5-500 per MT (product-specific). IGST is charged on (Assessable Value + BCD + ADD). So: ADD increases the base for IGST calculation → double impact. CVD (Countervailing Duty): replaced by IGST under GST. Earlier: CVD = excise equivalent on imports. Now: IGST covers both excise + VAT equivalent. SAFEGUARD DUTY: Temporarily imposed on steel imports (2015-2020 period). Now expired. If reimposed: IGST calculated on (AV + BCD + Safeguard). STEEL EXPORT DUTY (2022): Government imposed 15% export duty on steel (May-Nov 2022). Reason: control domestic steel prices (inflation). GST on export: still zero-rated. But export duty: separate levy on export. This reduced steel exports from 15 MT to 5 MT in that period.