GST hurdles threaten India’s green steel ambitions: AlIFA - Kallanish Commodities

India’s secondary steelmakers are facing growing financial and legal stress due to a long-standing Goods and Services Tax (GST) issue, Kallanish learns from AlIFA Sustainable Steel Manufacturers Association advisor Mohit Kapoor.

The problem prevents mills from claiming input tax credit (ITC) on scrap purchases, even when they have paid GST in full. ITC allows businesses to claim back the tax they pay on inputs, such as raw materials, against the tax they charge on their final products.

But in the scrap trade, many small or unorganised dealers fail to deposit with authorities the GST collected from buyers. As a result, mills that buy scrap cannot claim ITC and end up paying tax twice on the same material.

Kapoor says this double taxation, combined with litigation stress, interest and late payment charges, has become a double blow for genuine producers.

Despite this challenge, India’s secondary steel sector continues to contribute strongly to the country’s green steel ambitions. The industry has increased scrap use by over 15% in the first half of the current fiscal year, even as global scrap-based steel output falls amid high energy costs and weak demand.

Each tonne of recycled scrap saves about 1.1 tonnes of CO₂, 1.4t of iron ore and 740kg of coal, industry data show. Kapoor says a fair GST system is key to sustaining this progress.

He suggests linking ITC to traceable scrap transactions, introducing a reverse charge mechanism (RCM) – where the buyer, not the seller, pays GST directly to the government – or protecting buyers who have paid GST in good faith. Such measures could secure tax revenue while supporting India’s low-carbon steel goals.

Kallanish understands from experts that the Indian government is not implementing RCM because it could increase paperwork for buyers and create cash flow pressure, since they would have to pay GST upfront. The government instead wants to improve digital tracking and invoice matching to stop tax evasion.

Kapoor concludes that recognising and supporting the secondary steel sector through fair GST rules would reaffirm the government’s commitment to its Make in India and Atmanirbhar Bharat programmes. He adds that the industry’s success is key to building a cleaner and more resource-efficient future for Indian steel.