GST & Indirect Tax

GST on Scrap Sales by Manufacturing Units: Checklist, Due Dates and Common Mistakes

📅 June 2026GSTReviewed 3 Jul 2026✔ cbic-gst.gov.in

Manufacturing units generate scrap that is sold to dealers. Scrap sales attract GST, and from October 2024 TDS on scrap was extended. This guide covers TDS applicability, invoicing and common errors.

Use the Finin2min GST Services Rate Master to apply these points to your figures or facts.

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Quick answer: Scrap sold by a manufacturing unit is always a taxable supply at the HSN rate for that scrap material — it is never exempt just because it is a byproduct. Since 10 October 2024, buying metal scrap (Chapters 72–81) from a REGISTERED supplier triggers 2% GST TDS on the buyer once the contract value crosses ₹2.5 lakh, while buying the same metal scrap from an UNREGISTERED supplier instead shifts GST itself to the buyer under reverse charge. The two mechanisms depend entirely on the supplier’s registration status.

GST Rates on Common Scrap Types

Scrap Type	HSN	GST Rate
Ferrous scrap (iron and steel)	7204	18%
Non-ferrous scrap (copper, aluminium)	7404/7602	18%
Plastic waste/scrap	3915	5%
Paper/cardboard waste	4707	5%
Rubber scrap	4004	5%
Electronic waste (e-waste)	8549	18%
Textile waste	6310	5%
Glass cullet	7001	5%

For the connected rule, example or next step, see GST on SaaS Subscription Sales by Indian Startups.

TDS on Metal Scrap Under GST (From October 2024)

Notification No. 25/2024-Central Tax (effective 10 October 2024) extended the GST TDS mechanism under Section 51 of the CGST Act to any registered person — not just government departments and PSUs — receiving supplies of metal scrap classified under Chapters 72–81 of the Customs Tariff Act from another registered supplier. The recipient must deduct 2% TDS where the taxable value of the contract exceeds ₹2,50,000, obtain a separate GST TDS registration (Form REG-07), and the supplier receives TDS credit in their cash ledger.

For the connected rule, example or next step, see GST on Scrap Generated from Job Work: Ownership, Invoice and E-Way Bill Workflow.

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Common Misunderstanding — TDS Is Not Limited to Government Buyers: A private manufacturing company that regularly buys metal scrap (ferrous, non-ferrous, e-waste falling under Chapters 72–81) from another GST-registered supplier must deduct 2% GST TDS once the per-contract taxable value crosses ₹2.5 lakh. This is a B2B obligation, not limited to government/PSU buyers.

RCM on Metal Scrap From Unregistered Suppliers (From October 2024)

Separately, Notification 06/2024-Central Tax (Rate) brought metal scrap supplied by an unregistered person to a registered recipient under reverse charge from 10 October 2024. In this scenario, the registered buyer (not a government/PSU-only rule) pays GST under RCM on the purchase and can claim ITC, similar to the commercial property RCM rule.

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Two Separate Mechanisms — Don't Confuse Them: (1) TDS under Section 51 applies when buying scrap from a registered supplier — the registered buyer deducts 2% TDS. (2) RCM applies when buying scrap from an unregistered supplier — the registered buyer pays GST directly under reverse charge. A manufacturing unit buying scrap regularly should check supplier registration status to apply the correct mechanism.

Worked Example

Ferrous scrap sale, two supplier scenarios

A manufacturing unit sells ₹4,00,000 of ferrous scrap (HSN 7204, 18% GST) to a registered scrap dealer. GST invoice: ₹4,00,000 + 18% = ₹4,72,000. The dealer is a registered person buying from a registered supplier, so ordinary GST invoicing applies — no TDS or RCM issue on this sale.

Now flip the roles: the same manufacturing unit BUYS ₹3,00,000 of metal scrap from a registered supplier. Because the contract value exceeds ₹2,50,000, the manufacturing unit (as buyer, holding a GST TDS registration) must deduct 2% TDS = ₹6,000, paying the supplier ₹3,00,000 + GST minus ₹6,000 TDS. If it instead bought the same scrap from an UNREGISTERED supplier, there would be no TDS at all — the manufacturing unit would instead pay GST directly to the government under reverse charge and claim ITC.

Section 206C TCS on Scrap (Income Tax)

Under Section 206C of the Income-tax Act, a seller of scrap must collect TCS at 1% from business buyers. This is an income tax provision, distinct from GST. From Tax Year 2026-27, this falls under new Act TCS provisions.

Common Compliance Mistakes to Avoid

Using wrong HSN — metal scrap coded as finished goods — attracts scrutiny and rate disputes
Not raising GST invoice for scrap sold to unregistered buyers — scrap sale is always taxable
Forgetting to collect TCS under income tax Section 206C on scrap sales to business buyers
Not reporting scrap sale separately in GSTR-1 with correct HSN and tax rate
Treating scrap as exempt supply — scrap is always taxable at applicable rate

FAQ

For the connected rule, example or next step, see GST Rate and Cess Calculator.

Is scrap generated during manufacturing taxable? +

Yes. Scrap, waste or byproducts generated during manufacturing and sold attract GST at the applicable HSN rate. A tax invoice must be raised and the sale reported in GSTR-1 and GSTR-3B.

Can the buyer of scrap claim ITC? +

Yes — if the buyer is a registered taxpayer and uses scrap for taxable business activities (e.g., metal recycler using scrap as raw material), full ITC on GST paid is available with a valid tax invoice.

What if a manufacturer destroys scrap internally? +

Internal destruction without sale does not attract GST. However, ITC on inputs that generated the destroyed scrap must be reversed under Rule 42/43. Maintain a destruction certificate for records.

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: GST & Indirect Tax
Official starting point: www.gstcouncil.gov.in

Page source links

Primary sources & related provisions

Statutory provisions referenced in this guide: