Reverse Charge under GST in Scrap Trading Business

Hi Aman,

Good question on how to handle Reverse Charge Mechanism (RCM) for scrap purchases under GST, especially from unregistered suppliers.

Key points on RCM for scrap trading:

1. Purchases from unregistered suppliers attract RCM if the supplier is unregistered and the buyer is registered under GST.

2. As a registered buyer, you must self-invoice for such purchases and pay GST under reverse charge.

3. You are responsible for charging GST at the correct applicable rate (e.g., 18% for iron scrap, 5% for books, etc.).

How to record and invoice?

• Since you buy scrap from multiple unregistered vendors:

  • You must prepare a separate self-invoice for each purchase or each supplier transaction because the rate of GST may differ item-wise.

  • A consolidated invoice covering different GST rates is not advisable, as GST rates vary by item.

• Self-invoices should contain:

  • Your GSTIN (buyer’s)

  • Date of purchase

  • Details of items purchased (descripttion, quantity, value)

  • GST rate applicable on each item

  • GST amount calculated and paid under RCM

On recording purchases:

• Maintain a purchase register with details of all purchases under RCM.

• Record GST paid on reverse charge in your books and claim input tax credit (ITC) subject to conditions.

Practical suggestions:

• If daily purchase volume is high, prepare self-invoices daily per vendor or transaction.

• You can maintain separate registers or Excel sheets summarizing purchases by GST rate for easier accounting.

• Some software tools allow self-invoicing for RCM with multi-rate items.

Summary: