MRAI deliver suggestions for Union Budget 2022-23 regarding changes in direct and indirect taxes

The apex body of India, the Material Recycling Association of India (MRAI), which represents the interest of the recycling industry with over 1200 members, comprising most of the Regional Trade/Product Associations with a collective strength of over 20,000 SMEs and large enterprises and directly and indirectly employing 2.5 million people, stretching across recycling and recyclable commodities including aluminium and other Non-Ferrous and Ferrous metals has drawn the attention that is advancing as major challenges to the sustainability of domestic companies, thus desired the urgent attention of the government.

Free Trade Agreement:

Issue: The Copper and Copper Alloy fabricating industry manufacturing Sheets/Strips/Rods/Foils/Tubes etc. covered under HSN Codes Chapter 7409/7410/7411, is faced with the Inverted Duty Structure anomaly as the principal input irrespective of any Free Trade Agreement (FTA) viz. Copper Cathode, etc. are subject to a levy of 5% Customs Duty. Also, though duty on COPPER SCRAP (HSN Code 74041200) has been reduced from 5% to 2.5% in the last Budget, considering Nonferrous Metals being high valued items 2.5% is also very high.

Justification: Under the FTA there has been the core issue of Inverted Duty Structure wherein all finished products of aluminium. Copper and copper alloys in the form of tubes, sheets, rods can be imported duty-free (0% Duty) from ASEAN countries, whereas 5% import duty is levied on the import of essential raw materials i.e., aluminium scrap, copper cathodes and copper scrap to manufacture the same products in India. These raw materials are for our finished products which are aluminium scrap (HSN Code 7602), copper cathode (HSN Code 7403) and copper scrap (HSN Code 7404) attracting a duty of 5% and 2.5% respectively and are in the negative list of offering under FTA.

There has been a significant surge in imports of more than 800%, supported mainly by various concessions, including FTAs signed by India leading to the lowering of customs duties on finish products. This issue has also created significant ripple effects. Domestic companies have lost significant market share to foreign entities under FTA which has made it nearly impossible for them to survive, which in turn has led to a substantial loss of jobs.

Suggestion: MRAI has been incessantly representing for the last 5 years regarding the core issue of Inverted Duty Structure wherein all finished products of aluminium, Copper and copper alloys in the form of tubes, sheets, rods can be imported duty-free (0% Duty) from ASEAN countries, whereas 5% Import Duty is levied on the import of essential raw materials i.e., aluminium scrap, copper cathodes and copper scrap to manufacture the same products in India. These raw materials are for our finished products which are aluminium scrap (HSN Code 7602), copper cathode (HSN Code 7403) and copper scrap (HSN Code 7404) attracting a duty of 5% and 2.5% respectively and are in the negative list of offering under FTA.

In the last budget, duty on COPPER SCRAP (HSN Code 74041200) has been reduced from 5% to 2.5%, though considering Non-ferrous Metals being high valued items 2.5% is also very high.

Since India does not have enough good quality metal scrap, our secondary Metal Recycling/Secondary industry relies on imports of metal scrap to meet the shortfall. MRAI, therefore, requests “The removal of 2.5- 5% of Basic Customs Duty currently levied on imports of metals scrap. We therefore strongly request for the basic customs duty on all grades of metal scrap should be brought down to ZERO to promote the Indian manufacturing industry.”

Moreover, if the customs duty on the import of scrap is brought down to zero then the problem of inverted duty structure faced by the importers due to the Free Trade Agreement will also be resolved.

Tax Collected at Source:

Issue: 1% TCS on Non-Ferrous Metals - Copper and Brass Scrap

Justification: The non-ferrous metals' items being of high value is a constraint, as whilst filing the advance tax the amount of refund of TCS seems unusually large, which results in unwarranted scrutiny of the file creating needless inconveniences, paperwork and interest loss.

The average price of Non-ferrous metals is around INR 750,000/- per metric tonnes hence 1% comes to INR 7500/- per metric tonnes also the same scrap material changes hands for at least 2-3 times resulting in almost 3%.

TCS collection on the same product, considering the high value of non-ferrous metals and huge volume of trade, this levy is certainly a heavy burden on the non-ferrous metals trade and industry.

In this regard, MRAI said, “We would also like to draw your attention that the basic applicability of TCS on scrap is based on the definition of Scrap given in Section 206C of Income Tax Act 1961-2014.”

“We would like to mention here that non-ferrous metals scrap is reusable as after melting it we can create a new product and hence it should not come under the purview of TCS which is applicable based on the above definition of scrap.”

Suggestion: As per the rules and taking into consideration the turnover limit the levy of TCS should be 0.1%. Though we genuinely feel in the best interest and smooth functioning of the Non-ferrous metals trade and industry, the TCS from Non-ferrous metals scrap should be exempted especially for the GST Registered Entities as this will adhere to the Government's policy of "One Nation One Tax".

Goods and Services Tax:

Issue: High GST rate charged on Non-Ferrous metal products GST-Fake Input Tax Credit

Justification: The metal scrap business is a category being run by small shop owners and it is an unorganized sector. The source of scrap is also from unidentifiable sources of procurement. The people are not much educated and are not able to comply with the complexity of GST law Metals Scrap being a High Value and High-Volume Item and the GST rate on it is 18%, it has become the soft target of many unethical people to do fraud business.

Suggestion: MRAI stated, "We earnestly request you to kindly reduce the GST rate on Non-ferrous Metals from 18% to 5%. As it will not only reduce the incentive for fake billing but also shift the burden of tax compliance on manufacturers this making the supply chain more tax compliant and increasing the Revenue of GST from the Metal Recycling Sector."

MRAI has concluded by addressing that the trade and industry currently face severe headwinds due to internal and external factors. During this time adequate support must be extended by the government to help counter these difficulties so that companies ranging from micro-businesses to large scale industries can weather these challenges and can continue contributing to the great Indian growth story.