GST on Scrap Sales in India: Rates, HSN Codes and the Reverse Charge Trap

Updated: August 29, 2026 · 17 min read

Scrap traders across Mumbai’s Dharavi cluster and Bhiwandi’s industrial yards received a sharp reminder in late 2024: GST on scrap in India is no longer a matter of informal arrangements. With Notification No. 08/2024-Central Tax (Rate) issued on 10 October 2024, the Central Board of Indirect Taxes and Customs (CBIC) made Reverse Charge Mechanism (RCM) mandatory on metal scrap purchases from unregistered suppliers — a shift that rewrites the cost arithmetic for thousands of aggregators, dismantlers and recyclers operating across Maharashtra, Gujarat and Delhi-NCR. If your purchase ledger still shows unregistered scrap vendors without an RCM entry, you are already non-compliant.

This article walks through the full GST architecture for scrap — rate by material, HSN classification, RCM applicability, ITC eligibility, e-invoicing obligations and penalty exposure — with the specificity that your CA or compliance officer will actually need to act on.

GST Rate Schedule for Scrap by Material: What the HSN Actually Says

The single most common error in scrap GST filings is the conflation of the “scrap” category as if it attracts one uniform rate. It does not. The GST portal’s HSN rate schedule treats scrap by the material class of the parent commodity, not by the physical condition of the waste. The practical consequence: a ferrous scrap consignment and a rubber scrap consignment leaving the same yard on the same day attract entirely different rates.

Ferrous and Non-Ferrous Metal Scrap — 18%

Scrap of iron and steel falls under HSN Chapter 72 (specifically HSN 7204), and attracts GST at 18%. Non-ferrous metal scrap follows the same 18% rate but under different chapter headings: copper scrap under HSN 7404, aluminium scrap under HSN 7602, lead scrap under HSN 7802, zinc scrap under HSN 7902, and brass scrap — a common point of confusion — under HSN 7404 as a copper alloy. Stainless steel scrap falls under HSN 7204 alongside mild steel scrap. The Ministry of Steel, Government of India has consistently advocated the 18% rate to support domestic secondary steelmaking, and successive GST Council meetings have left this slab undisturbed.

Plastic Scrap — 5%

Plastic waste and scrap classified under HSN 3915 attracts a concessional 5% GST rate. This was a deliberate policy choice to encourage formalisation of plastic recycling and reduce the cost disadvantage faced by registered recyclers competing against the informal sector. Segregated plastic scrap — PET bottles, HDPE granules, LDPE film — all fall here, provided the seller can demonstrate they are transacting scrap and not reprocessed material, which may attract different classification.

Rubber, Paper, Glass and Other Scrap

Rubber scrap (HSN 4004) attracts 5% GST. Paper waste and scrap (HSN 4707) also falls at 5%, making it relevant for packaging-heavy FMCG plants selling off OCC (old corrugated containers). Glass scrap (HSN 7001) attracts 5%. Electronic scrap and WEEE is more complex — components may attract 18% where they retain functional value, while undifferentiated e-waste destined for authorised recycling typically attracts 5% under HSN 8549. For businesses managing e-waste recycling and disposal, correct HSN classification between HSN 8549 and HSN 8473 (parts) can be the difference between a clean audit and a demand notice.

Scrap Category	HSN Code	GST Rate	RCM Applicable (post Oct 2024)?
Iron & Steel Scrap (incl. MS, SS)	7204	18%	Yes — if supplier unregistered
Copper & Brass Scrap	7404	18%	Yes — if supplier unregistered
Aluminium Scrap	7602	18%	Yes — if supplier unregistered
Lead Scrap	7802	18%	Yes — if supplier unregistered
Plastic Scrap (PET, HDPE, LDPE)	3915	5%	No (not covered by Oct 2024 notification)
Paper & Paperboard Scrap	4707	5%	No
Rubber Scrap	4004	5%	No
Electronic Scrap / WEEE	8549	5%	No

The October 2024 RCM Notification That Changed Everything for Metal Scrap Buyers

Before 10 October 2024, a registered scrap dealer purchasing metal scrap from an unregistered kabadiwala or small aggregator could simply book the purchase without any GST liability — the unregistered supplier was below the threshold, and the registered buyer had no obligation to self-assess tax. That position changed materially with Notification No. 08/2024-Central Tax (Rate), issued under Section 9(3) of the CGST Act, 2017.

Under this notification, any registered person who purchases metal scrap falling under HSN Chapters 72 to 81 from an unregistered supplier is now required to discharge GST at the applicable rate (18% for most metals) on a reverse charge basis. The liability falls entirely on the buyer. The buyer must raise a self-invoice under Rule 36 of the CGST Rules, 2017, report it in GSTR-3B as outward supply under RCM, and simultaneously claim ITC in the same return — subject to the usual ITC eligibility conditions.

The practical exposure here is significant. A Mumbai-based secondary steel melting unit buying 500 tonnes of MS scrap per month at ₹34/kg from a pool of unregistered collection agents is dealing with a monthly purchase value of approximately ₹1.7 crore. At 18% GST under RCM, the self-assessed tax liability is ₹30.6 lakh per month — a number that must be correctly declared in GSTR-3B and reflected in the cash or ITC ledger before the 20th of the following month. Delays attract interest at 18% per annum under Section 50 of the CGST Act, 2017 from the due date of payment.

The notification also has a compliance cascading effect. Because the buyer must issue a self-invoice, the counterparty — the unregistered aggregator — now has a documentary trail that tax authorities can use to assess whether the aggregator has breached the GST registration threshold of ₹40 lakh (or ₹20 lakh for certain states). CBIC field formations in Maharashtra and Gujarat have already begun cross-referencing GSTR-2B data against e-way bill records to identify high-volume unregistered scrap suppliers. The advice to aggregators operating near this threshold: get registered before the department does it for you.

Input Tax Credit on Scrap Purchases: When You Can Claim, When You Cannot

ITC on scrap purchases is available to registered buyers — but the conditions under Section 16 of the CGST Act, 2017 apply with full force, and scrap transactions are particularly prone to the failures that invalidate ITC claims.

First, the seller must have filed GSTR-1 and the supply must appear in the buyer’s GSTR-2B. In an industry where many suppliers are small, seasonally active or irregular in their filings, auto-populated GSTR-2B frequently does not match purchase registers. ITC claimed on the basis of a tax invoice alone — without the corresponding GSTR-2B reflection — is recoverable under Section 73 or Section 74 of the CGST Act, 2017, with penalty. The GST Council’s Rule 36(4) of the CGST Rules, 2017 caps provisional ITC (for supplies not yet reflected in GSTR-2B) at nil for FY 2024-25 onwards, meaning you cannot provisionally claim ITC on missing entries any longer.

Second, for scrap purchases where the buyer intends to process and re-sell, ITC is available. But scrap businesses that also engage in exempt supplies (such as sale of plastic scrap under certain state VAT-era exemptions that have been absorbed differently, or mixed supply arrangements) must apply the proportionate reversal formula under Rule 42 of the CGST Rules, 2017. Misapplication of Rule 42 is one of the more common findings in GST audits of recycling entities.

Third, for RCM-assessed transactions under the October 2024 notification, ITC on the self-assessed tax is available only after payment is made in cash — ITC ledger balances cannot be used to discharge RCM liability. This is an oft-misunderstood point. The RCM liability must hit the cash ledger first; once discharged, it transfers to the ITC ledger and can be used against forward charge output tax. For businesses with tight working capital, this creates a real cash-flow gap of 30–60 days depending on turnover cycles.

E-Invoicing and the ₹5 Crore Threshold: Who Must Comply Right Now

E-invoicing under the CGST Act, 2017 became mandatory for businesses with aggregate annual turnover above ₹5 crore from 1 August 2023, pursuant to Notification No. 10/2023-Central Tax dated 10 May 2023. For a sector where mid-sized scrap dealers routinely cross ₹10–₹50 crore in annual throughput — particularly those operating in Mumbai, Pune, Surat, Ahmedabad or Delhi’s Mayapuri cluster — this is not an optional compliance.

An e-invoice in the scrap context means every B2B tax invoice must be registered on the Invoice Registration Portal (IRP) and an Invoice Reference Number (IRN) generated before the document is issued. The IRN must appear on the physical or electronic invoice. For scrap transactions, the mandatory fields include the correct 4-digit or 8-digit HSN code (mandatory for turnover above ₹5 crore), the GSTIN of both parties, and the correct tax rate. An invoice issued without a valid IRN is not a valid tax document in law. The buyer cannot claim ITC on such an invoice, and the seller is treated as having not issued an invoice — attracting penalty of ₹10,000 per invoice under Section 122 of the CGST Act, 2017.

For scrap traders who source from multiple unregistered aggregators and sell to one or two large mills or foundries, the downstream buyer’s ITC is entirely contingent on the seller’s e-invoicing compliance. This is increasingly becoming a vendor qualification criterion. Large steel plants in Raipur, Bhavnagar and Mandi Gobindgarh now explicitly require e-invoice-compliant suppliers as a procurement filter — a trend that mirrors what happened with BRSR documentation in listed-company supply chains. For more on how compliance documentation is reshaping vendor onboarding, see our post on why procurement now asks for certificates of recycling.

HSN Code Classification Errors: The ₹10,000 Trap and How Auditors Find It

Classification disputes between scrap and secondary raw material are the most fertile ground for GST department scrutiny in the recycling sector. The line between “scrap of a metal” (lower duty, often exempt from BIS quality norms) and “secondary material” or “re-melt ingot” (potentially attracting different rates and mandatory quality certifications) is commercially significant and legally contested.

The most common classification errors seen across India’s scrap sector cluster around four areas. First, brass scrap (HSN 7404) being filed as zinc alloy scrap (HSN 7902), which changes the rate computation. Second, shredded aluminium melted and re-cast into secondary ingots being filed under HSN 7602 (aluminium scrap) rather than HSN 7601 (unwrought aluminium), the latter attracting a different commercial and tax treatment. Third, e-waste being classified under HSN 8473 (parts of computers/electronics) at 18% rather than HSN 8549 (electrical and electronic assemblies/scrap) at 5%, inflating the tax charge. Fourth, mixed non-ferrous scrap (birch cliff, zorba) being filed under a single metal heading rather than as a mixed material — the HSN for mixed non-ferrous metal scrap is 8112, and getting this wrong produces a cascading GSTR mismatch.

Under Section 122(1)(ix) of the CGST Act, 2017, issuing an invoice with an incorrect HSN code attracts a penalty of ₹10,000 or 10% of the tax due on the supply — whichever is higher. For a 20-tonne copper scrap consignment at ₹550/kg (current Mumbai yard pricing in Q1 2026), the invoice value is ₹1.1 crore and the tax at 18% is ₹19.8 lakh. A classification error here carries a minimum penalty exposure of ₹1.98 lakh per consignment. Multiply that across quarterly volumes and the exposure is commercially material, particularly for traders running thin margins of ₹1.50–₹3/kg on copper grades.

GST audit teams increasingly cross-reference e-way bill commodity descriptions against GSTR-1 HSN summaries. Divergences — such as an e-way bill describing “copper scrap” but the GSTR-1 showing a different HSN — are automatically flagged in the GSTN analytics engine. With the department’s ADVAIT AI tool now operational, this matching happens algorithmically and generates notices without human intervention at the first stage.

The 7-Step GST Compliance Checklist for Scrap Traders and Recyclers

Compliance in the scrap GST space is not one-time — it is a monthly operational discipline. The following checklist reflects the minimum standard that a GST audit or departmental scrutiny would test against in FY 2025-26.

1. Verify HSN codes for every scrap category you handle — map each material to the correct 4-digit or 8-digit HSN per the GST rate notification. Maintain an internal HSN master, approved in writing by your CA or tax team, and update it when you introduce new scrap categories.
2. Identify all unregistered suppliers and assess RCM applicability — for every unregistered vendor from whom you purchase metal scrap under HSN Chapters 72–81, you are now required to discharge 18% GST under Notification No. 08/2024-Central Tax (Rate). Raise self-invoices under Rule 36 of the CGST Rules, 2017 on the date of receipt of supply.
3. Reconcile GSTR-2B monthly before claiming ITC — do not claim ITC on purchases not reflected in your GSTR-2B. Build a formal reconciliation process between your purchase register and GSTR-2B before filing GSTR-3B by the 20th of each month.
4. Check your e-invoicing obligation threshold — if your aggregate annual turnover in the preceding financial year exceeded ₹5 crore, every B2B invoice must carry a valid IRN from the Invoice Registration Portal. Register on the IRP if you have not done so.
5. Apply RCM cash payment discipline — RCM liability cannot be paid from ITC balance. Set aside cash in your GST cash ledger to cover RCM each month. Factor this into your working capital planning, especially if you are a high-volume unregistered-supplier buyer.
6. Conduct a Rule 42 proportionate ITC reversal assessment — if your business includes any exempt supplies or supplies to composition dealers, calculate and reverse the proportionate ITC monthly. Failure to do so triggers Section 73/74 demand with interest at 18% per annum.
7. Maintain e-way bill records aligned with invoice HSN descriptions — every consignment of scrap above ₹50,000 in value requires an e-way bill under Rule 138 of the CGST Rules, 2017. Ensure the commodity description and HSN on the e-way bill exactly match the corresponding tax invoice. Mismatches are the primary trigger for departmental scrutiny under the GSTN’s AI-driven analytics system.

For businesses managing ferrous and non-ferrous scrap volumes alongside hazardous or restricted materials, GST compliance intersects with obligations under the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 — particularly for lead-acid battery scrap, which simultaneously attracts 18% GST (HSN 7802 for lead) and requires CPCB-authorised disposal. Similarly, plastic scrap transactions intersect with EPR obligations under the Plastic Waste Management Rules, 2016 (as amended). A holistic compliance posture must address both tax and environmental regulatory layers together. Our detailed guide on Hazardous Waste Rules compliance for Indian factories covers the environmental side of this intersection.

Related Articles

• Copper Scrap Rate in India: Grade-Wise Pricing, LME Linkage and How to Negotiate Better
• BRSR Core Assurance: The Waste and Circularity Metrics Your Auditor Will Test
• Hazardous and Other Wastes Rules 2016: A Practical Compliance Map for Indian Factories

Frequently Asked Questions

What is the GST rate on metal scrap in India?

Ferrous and non-ferrous metal scrap — including iron, steel, copper, aluminium, brass and lead scrap — attracts GST at 18% under HSN Chapters 72 to 81. This rate has been maintained across successive GST Council reviews. Plastic scrap (HSN 3915) and paper scrap (HSN 4707) attract 5%. Always verify the specific HSN for your material category on the GST portal before raising an invoice.

What is the HSN code for iron and steel scrap?

Iron and steel scrap — including mild steel (MS) scrap, cast iron scrap, stainless steel scrap and alloy steel scrap — falls under HSN 7204 under Chapter 72 of the Customs Tariff Act schedule adopted under GST. When issuing invoices, businesses with turnover above ₹5 crore must use the full 8-digit HSN; those between ₹1.5 crore and ₹5 crore may use the 4-digit code. Below ₹1.5 crore, HSN reporting is optional but advisable for audit resilience.

When does Reverse Charge Mechanism apply to scrap purchases?

Under Notification No. 08/2024-Central Tax (Rate) dated 10 October 2024, any GST-registered buyer who purchases metal scrap (HSN Chapters 72–81) from an unregistered supplier must discharge GST at 18% on a reverse charge basis. The buyer must issue a self-invoice under Rule 36 of the CGST Rules, 2017, pay the RCM liability in cash (not ITC), and subsequently claim the paid amount as ITC — subject to standard Section 16 conditions.

Can I claim Input Tax Credit on scrap I purchase for recycling?

Yes — ITC is available to registered buyers on scrap purchased for use in taxable supplies (such as sale of recycled metal, processed material or further trading). The supply must appear in your GSTR-2B, the seller must have filed their GSTR-1, and you must hold a valid tax invoice with a correct HSN code. For RCM purchases, ITC is available only after the RCM liability is discharged in cash under Section 16(2)(d) of the CGST Act, 2017. ITC is blocked under Section 17(5) only for personal consumption — pure B2B scrap trading is not affected by Section 17(5) blocks.

What are the penalties for incorrect HSN classification on a scrap invoice?

Under Section 122(1)(ix) of the CGST Act, 2017, issuing an invoice with an incorrect or missing HSN code attracts a penalty of ₹10,000 or 10% of the tax due on the concerned supply, whichever is higher. For high-value metal scrap consignments, the 10% slab typically far exceeds the ₹10,000 floor. Persistent misclassification can also trigger Section 74 proceedings (fraud or wilful misstatement), which carry a penalty of up to 100% of the tax due.

Work With The National Recycling Corporation

The National Recycling Corporation is a registered scrap buyer, aggregator and recycling facilitator operating across Mumbai, Thane, Pune, Navi Mumbai and pan-India through a network of authorised partners. Every purchase and sale transaction we conduct is backed by a fully GST-compliant tax invoice carrying the correct HSN code, verified against our material-level classification register. We generate e-invoices with valid IRNs for all B2B transactions, ensuring your Input Tax Credit is clean and audit-ready from day one.

For metal scrap — ferrous and non-ferrous — our pricing is benchmarked to the London Metal Exchange (LME) daily official prices with transparent grade-to-LME discount disclosures. For plastic, e-waste and hazardous scrap streams, we work exclusively with CPCB-authorised downstream processors, and every transaction is accompanied by a Certificate of Recycling or Certificate of Destruction — the documentation increasingly demanded by procurement teams conducting BRSR and vendor ESG audits. Our metal scrap recycling services cover the full range from MS shredded to zorba, and we handle pick-up logistics across Maharashtra, Gujarat and Delhi-NCR.

Whether you are a factory plant manager looking to clean up your scrap yard before a GST audit, a CFO needing a compliant scrap disposal vendor on your approved list, or a sustainability officer building BRSR-grade waste diversion records, we are structured to serve your requirements end to end. Contact us to schedule a site assessment or request a rate quote.

• Pan-India pickup and logistics, including Tier-2 industrial clusters
• GST-compliant invoicing with correct HSN codes and e-invoice IRN for every B2B transaction
• Fair-market pricing indexed to LME for copper, aluminium, lead and stainless steel
• Certificate of Recycling / Certificate of Destruction for audit and BRSR documentation
• CPCB-authorised disposal partners for hazardous and e-waste streams
• Dedicated account management for factories, dismantlers and industrial parks

Sources and References

• GST Council — HSN Rate Schedule and Notifications (gst.gov.in)
• CBIC — GST Rate Notifications including Notification No. 08/2024-Central Tax (Rate), 10 October 2024
• CPCB — Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016
• Ministry of Steel, Government of India — Secondary Steel Policy and Scrap Import/Domestic Framework
• CPCB EPR Portal — Plastic Waste Management Rules (as amended 2024)
• MSTC Ltd — Government Scrap Auction Portal (mstcindia.co.in)
• London Metal Exchange — Official Daily Metal Price Data
• NITI Aayog — Circular Economy and Resource Efficiency Policy Framework