One Nation One Tax: GST and the Steel Industry

One Nation One Tax: GST and the Steel Industry

‘GST: One Nation, One Tax’ was conceptualised way back in the year 2000. The objective was to replace the prevailing complex and fragmented tax structure with a unified system that would simplify compliance, reduce tax cascading and promote economic integration. With the assent of the President of India, the GST Act came into force in 2017.

In addition to the applicability of uniform tax rates across states, the concept of GST was based on the seamless flow of input tax credits to remove the cascading impact and digitalization of compliance. Being a destination-based tax, GST is levied at each stage of the supply chain, initiating from the manufacturer and flowing to the end consumer. It is applied to the value addition at each stage, allowing for the seamless availing of credits and reducing the tax burden on the end consumer.

Indian Iron and Steel Industry and its Strategic Importance

The iron and steel Industry forms the backbone of our nation and has been one of the biggest contributors to India’s GDP. The steel manufacturing Industry can be broadly grouped into two categories — primary manufacturing and secondary manufacturing using induction furnace process. India, being the second largest steel producer in the world and employing over 6,00,000 people, has witnessed steady growth over the years. The steel Industry has rooted its presence in the construction and manufacturing markets.

Recognizing the strategic importance of the steel sector, the National Steel Policy, 2017 (NSP-2017) aimed to increase crude steel capacity to 300 MT by 2030-31, with the secondary steel sector expected to contribute 35-40 per cent of the total production.

Implementing GST Across the Steel Value Chain

Despite the benefits brought by GST, certain hindrances have also been observed in the steel manufacturing value chain, predominantly in the sector dealing with scrap.

The raw material for secondary steel manufacturing mainly comes from scrap dealers, a largely unorganized sector. At present, most of the steel products, including metal waste, attract GST at the rate of 18% and the liability to pay GST on supplies of such products is on the suppliers. Accordingly, the scrap dealers supplying metal scrap to manufacturers ought to collect and pay 18% GST on such transactions.

One of the biggest issues being highlighted by the Government authorities is the non-compliance of GST provisions by the scrap dealers concerning payment of GST on their outward supply and availing of the input tax credit on their procurements in a manner which has resulted in a loss to the Government exchequer. To curb such GST non-compliance, several actions are being undertaken by the GST authorities.

The Indian Steel Association has sent a representation to the Ministry of Steel on the possibilities to overcome the above issues. The key recommendations made by the Industry include reduction of the GST rate on metal scrap and to consider the entire supply chain of scrap from the perspective of reverse charge mechanism under GST. These recommendations were made keeping in mind the revenue-neutral transaction for the Government and to discourage the incorrect practices being followed in the scrap Industry. However, the best feasible solution is yet to be finalized by the Government.

This issue may act as a hurdle in the fulfilment of the Government’s objective, as laid under the National Steel Policy. Since its implementation, the Indian GST law has undergone various amendments and refinements based on feedback from businesses and other relevant stakeholders. GST rates were also tweaked to remove the anomalies keeping in mind the needs of the economy.

As every reform is evolving, GST also needs constant review based on the evolving needs of the economy. The next phase of GST reforms should cover further rate rationalization to remove disparities within the same category of products. Scope of Input tax credit should be expended covering all business expenses under the ambit. Tax compliance should be administered in one place instead of State-wise for the taxpayers like insurance, banking, telecommunications, etc. having a pan-India presence.

This article was written by Mr Koushik Chatterjee, Chairman, CII National Taxation Committee and Executive Director & CFO, Tata Steel Limited. It was first published in the March 2024 issue of CII Policy Watch.

GST: ONE NATION ONE TAX

79668.PWMarch2024GST30Apr.pdf (mycii.in)