GST on Scrap Sales: What Every Finance Manager in AP Needs to Know

Scrap sales are taxable under GST — and a surprisingly large number of businesses in Andhra Pradesh are handling this incorrectly. Not through deliberate evasion, but through informal vendor relationships that leave no documentation trail and create real audit exposure.

How the transaction actually works

When you sell scrap to a GST-registered buyer like RevivaGreen, the flow is straightforward. You raise a tax invoice on us showing the scrap value plus GST at the applicable rate. We pay you the full amount — taxable value plus GST — via bank transfer. You account for the GST as output tax in your GSTR-1. We claim it as input tax credit. The entire transaction is clean, documented, and audit-proof on both sides.

This is not complicated. The complication arises only when you sell to an informal dealer who pays cash with no invoice — because then your books show no record of the disposal, and income that should appear in your GSTR-1 is simply absent.

GST rates by material category

GST rates on scrap depend on the material category. Metal scrap — iron and steel (HSN 7204), aluminium (HSN 7602), copper (HSN 7404) — and plastic scrap (HSN 3915) all attract 18% GST. Paper and cardboard scrap (HSN 4707), glass cullet (HSN 7001), and rubber or tyre scrap (HSN 4004) attract 5% GST. When you sell scrap to RevivaGreen, you raise a tax invoice at the applicable rate. We pay you the taxable value plus GST in full. The transaction appears correctly in your GSTR-1 as a documented, auditable sale. Your CA will confirm the correct HSN code for each material category your business generates.

The real problem with informal dealers

The issue with informal dealers is not primarily about your ability to claim ITC — it is about what happens on your side of the books. When you hand scrap to an informal dealer and receive cash, you have sold taxable goods. That sale should appear in your GSTR-1 as output tax. If it does not, your books show undisclosed income from a taxable supply.

A GST audit that identifies significant scrap volumes in your production records — through raw material consumption ratios, for instance — but finds no corresponding disposal invoices in your GSTR-1 will flag that discrepancy. The consequences range from tax demands with interest to penalties that can substantially exceed the original liability.

What your CA needs from your scrap vendor

For your statutory auditor and CA to treat scrap disposal correctly, they need a valid GST invoice from your scrap vendor for every collection, the vendor's GSTIN verified against the GST portal, the material category and HSN code recorded on the invoice, and bank transfer confirmation for all payments.

If your current scrap vendor cannot provide these four things, your scrap disposal is not GST-compliant — regardless of how long the arrangement has been in place.

How to fix it

Switch to a GST-registered scrap vendor who issues compliant tax invoices for every collection. RevivaGreen issues GST invoices within 24 hours of every pickup, with material category, HSN code, weight, and applicable GST rate clearly stated. Your CA can verify every invoice against the GST portal. Your GSTR-1 is clean. Your ITC is recoverable. Your audit exposure is eliminated.