MRAI quote suggestions and recommendations for the ‘Union Budget 2022-23’ in respect to direct and indirect taxes-reg.

The apex national body of India, Material Recycling Association of India (MRAI), representing the interest of the recycling industry with over 1200 members, includes most regional trade/ product associations. The collective strength comprises over 20,000 small, medium and large enterprises, directly and indirectly employing 2.5 million people, spanning over recycling and recyclable commodities including metals (both Ferrous & Non-ferrous), plastic, paper, E-waste, tyre & rubber, glass, automobile, textile, building & construction and water.

The suggestions, recommendations and proposals for Indian Union Budget FY 2022-23 regarding direct taxes and indirect taxes-reg. are as follows:

• Removal of Custom Duty on import of Metal Scrap (HSN 7404, 7503, 7602, 8548, 7802, 7902, 8002
• Review of Free Trade Agreement (FTA)
• Reviewing the Inverted Duty Structures to offset Import duty on Metal Scrap
• The Indian secondary metals sector relies heavily on imported metal scrap as a key raw material as India does not have good quality/quantity of metal scrap. However, in India, an import duty ranging from 2.5% to 5% is levied on metal scrap. While Indian processors import metal scrap at the duty of up to 5%, processors in FTA countries pay no duty for the same & supply semi/ finished products on zero duty to India which also causes the Inverted Duty Structure.
• Furthermore, the issue of inverted duty structure has arisen mainly because (a) import duty on finished products is lower than import duty on raw materials (b) import duty on finished products is lower than duty rates on domestic procurement of raw materials (c) free trade agreements/regional trade agreements (FTAs/RTAs) with various countries ensure that finished products attract negligible or concessional rates of duty.
• If the basic customs duty on imported metal scrap is removed, then this will create a level playing field for Indian Recycling/Secondary producers thereby resulting in increased exports of Indian products and helping in creating employment in India. This will in turn support the Government’s “Make in India” policy and in becoming “Self-Reliant”.
• MRAI suggested that there is a need to review the FTA with ASEAN countries and take coercive action so that same will safeguard the interest of MSME and support in creating a level playing field for the Indian industry in the International market. The material recycling association announced that the entire ASEAN block has nil duty on imported raw materials (scraps), whereas, in India, importers pay duty. So, if it is not possible to amend FTA, kindly provide duty-free import to Indian manufacturers so that there is a level playing field for both.
• MRAI requested for immediate suspension of the imports of finished goods coming through ASEAN & CEPA Routes as it will not only give relief to the domestic trade and industries but also make us "Self-Reliant" to boost the campaign of “Make in India”.

In the case of non-ferrous metals production in India, production through recycling/secondary route illustrates the rate at aluminium is 30%, copper is 20%, lead is 85% and zinc is 10%. While products made out of recycling/secondary route are used in very critical industries like auto components, defence, white goods, pharma, engineering (LPG valves, water pumps, etc.)

The usage of environmentally friendly raw materials like metal scrap is being promoted by Governments all across the world. Since there is nil duty on metal scraps in neighbouring Countries (as shown in the chart below) & all other major countries; the Indian Recycling industry cannot compete in the International Market. The Indian secondary metals sector relies heavily on imported metal scrap as a key raw material as India does not have good quality/quantity of metal scrap. However, in India, an import duty ranging from 2.5% to 5% is levied on metal scrap. While Indian processors import metal scrap at the duty of up to 5%, processors in FTA countries pay no duty for the same & supply semi/ finished products on zero duty to India which also causes the Inverted Duty Structure.

If the basic customs duty on imported metal scrap is removed, then this will create a level playing field for Indian Recycling/Secondary producers thereby resulting in increased exports of Indian products and helping in creating employment in India. This will in turn support the Government’s “Make in India” policy and in becoming “Self-Reliant”.

The apex body requested the Government of India to bring the duties on raw materials i.e. metal scrap (HSN Code mentioned above) to ZERO which is required by the Indian recycling/secondary industry. The below points are highlighted in support of MRAI request:

1. As per the above chart, the countries mentioned are mainly from ASEAN and SAARC with whom India is having FTA agreements and are charging a nil rate of customs duty on import of Metal Scrap.
2. Most over the world custom duty on import of metal scrap are nil being an environmentally friendly raw material.
3. The secondary metal producers largely rely on imported scrap as their basic raw- material due to the non-availability of good quality domestic scrap in sufficient quantity.
4. World over, countries have allowed movement of metal scrap without putting any duty barriers (NIL Duty) as it is an essential raw material that helps in:

• Preserving natural resources
• Drastically reduces energy consumption
• Low emissions, thus reducing the carbon footprint
• Highly cost-effective

5. India is perhaps one of the exceptions, which has imposed an import duty ranging between 2.5 – 5% on the import of Non-Ferrous scrap.
6. Metal Recycling and manufacturing through secondary route leads to “Swachh Bharat” and “Make in India” programs of Govt. of India.

Since India does not have enough good quality metal scrap, the country’s 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. Therefore, MRAI strongly requests 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 (FTA) will also be resolved.

Furthermore, the issue of inverted duty structure has arisen mainly because (a) import duty on finished products is lower than import duty on raw materials (b) import duty on finished products is lower than duty rates on domestic procurement of raw materials (c) free trade agreements/regional trade agreements (FTAs/RTAs) with various countries ensure that finished products attract negligible or concessional rates of duty.

Impose GST @5% for all types of metal scrap (HSN 7404, 7503, 7602, 8548, 7802, 7902, 8002).

This will improve compliance and bring more scrap into the GST net from the first stage itself. The recommendation for lowering the GST rates on scrap, since it is mainly generated from end-of-life vehicles/components/products which are already charged GST/VAT on manufacturing of the products.

Apart from the scrap generation from organized industry players such as railways, automobiles, engineering units, etc., a significant amount of metal scraps are generated from households as well. Collection for this sector is highly unorganized and includes several dealers in the scrap collection process till the same reaches the manufacturers of the secondary metal. An illustrative supply chain of scrap collection process through households is as follows:

As evident from the above diagram, there are several dealers involved in the supply chain from households to manufacturers who remain below the prescribed threshold for registration under the GST laws. Accordingly, such dealers are generally not registered in GST and hence, not liable to pay GST on their outward supplies.

Medium-sized dealers, on the other hand, are generally registered under the GST laws and are required to pay GST at the rate of 18% on their sale price charged to the large dealers.

However, given the unorganized nature of the sector and 18% GST on metal scrap, medium dealers engage in the privilege of irregular input tax credits based on fake input credit invoices without any underlying supply of goods or services. To the extent the input tax credit availed is fake, there is an underpayment of tax to the Government. The reduction of the GST rate to 5% will ensure an increase in GST revenue to the government by adding more dealers into the GST net who at present may be avoiding paying GST due to the high rate on metal scrap.

GST on finished products manufactured from scrap recycling can be continued to be taxed at the present relevant rates which is the GST revenue for the Government.

The below illustration shows there will be no loss to the Government Revenue if GST on metal scrap is reduced to 5%.

Regarding the above table, Government will not lose a single rupee even if the GST rate is changed to 5% on metal scrap. Also, this will attract more stakeholders to come under the ambit of GST.

The utilisation of accumulated GST Credit for fresh imports

The majority of association members are facing a heavy accumulation of GST due to the higher Passing Value of Imported Metals Scrap due to valuation formula of customs (DGOV) as well as Inverted Duty Structure. Due to the Pandemic, all our members are countering heavy losses due to the fixed expenses, interest, etc. on one side and very low revenues on the other side.

On one side the association members are paying heavy interest to banks and on the other side, huge amounts are lying in GST without any Interest. So, we request you to allow our members to utilise the accumulated GST on fresh imports by our members so that the blocked working capital can be again brought back in the rotation.

Request to exempt goods & service tax levied on commission earned in foreign exchange on exports of services

1. Post the implementation of the GST law, 18% GST is now payable on commission earned in foreign exchange by Indian based companies on basis of the export of services provided by them to their foreign-based principal. There is an urgent need to get the GST removed on the export of such intermediary services that earn valuable foreign exchange for the country as commission paid to Indian agents is included in the price paid by the importer. Hence, this value is already charged IGST. Hence, it is double taxation of the commission amount.
2. Continuation of IGST may lead to the closure of business or shift of business to other countries leading to loss of revenue – GST & Income Tax and foreign exchange inflow. Indulgence in tax evasion activities by unscrupulous businesses cannot be ruled out.
3. As India is a service-based country and the Indians provide services to many overseas companies, if GST on Commission is withdrawn on intermediary service, it can strengthen our export services as well.

Applicability of TCS on metal Scrap u/s 206C

Recently, Finance Ministry has reduced an existing rate by 25% on TDS and TCS for a period from 14.05.2020 to 31.03.2021. This step is taken to overcome the liquidity crunch in the market due to the outbreak of COVID-19. This gave a little relief to the businesses.

Section 206C of IT Act, 1961 was introduced to curb BENAMI TRANSACTIONS (no name). However, the members (manufacturers and traders) are registered with various Government authorities and regularly assessed to tax.

The buyer who is registered under PAN and GST should be exempted from paying TCS irrespective of the fact that he is a manufacturer or trader. TCS is not a tax, it is just tax in advance which is adjusted against tax returns filed. It does not affect Government revenue. However, due to TCS, MSME units are facing a problem of blockage of funds. If these funds are available with entrepreneurs, this will help them to do more business thereby creating more employment and paying more tax to the Government.

The department should not levy TCS on metal scrap when manufacturer or traders provides GST, PAN similar to facilities provided to TRANSPORTER under TDS provisions. This will be a booster to the Indian metal recycling business which is giving employment to millions of people.

The intention of the government is only to bring assesses into the tax net who are not in the tax coverage. Presently, TCS applies only to registered trader and manufacturer is exempted. However, there is no provision to bring the unregistered trader and manufacturer under this TCS net. The very purpose of deposition of TCS is therefore defeated. Further, Metal scrap is a high-value raw material and almost all manufacturers and traders are covered under GST, Tax Audit u/s 44AB of the IT Act, 1961 and are regularly assessed for tax.

Suggestions about Direct Tax

a. Reduction of the income tax rate for corporate as well as individual

History shows that higher tax rates do not result in higher government revenue, but lower tax rates result in better tax compliance and higher government revenue. In this regard, it is suggested that the present income tax rates for both corporate as well as individuals should be reduced from 25% to 15%.

b. Reviewing the rate of tax on DDT recipients

The rate of tax on DDT recipients should be a maximum of 15% for recipients above the tax bracket of 15% and it should be nil for recipients below the tax bracket of 15% as this will encourage investment and also increase wealth creation for investors.