India's secondary steel manufacturers are subject to unfair taxes if domestic scrap suppliers default on payments, hindering the availability and use of scrap in local steel production, participants at a major industry event said.
If the scrap buyer is authentic and the supplier has not paid the goods and services tax (GST), government officials target the buyer for tax recovery, leading to double taxation in some cases, secondary steel producers and tax specialists said at the All India Induction Furnaces Association's (AIIFA) event in Mumbai on 20 September.
Additionally, interest and penalties are also sometimes imposed on scrap buyers, participants said. This has raised concern among secondary steelmakers, which account for 47pc of India's current crude steel capacity of about 200mn t/yr and use scrap as a key feedstock along with direct-reduced iron (DRI).
The reverse charge mechanism introduced by the Indian government in October 2024 makes scrap buyers responsible for paying GST, if the seller is not registered. There are frequent cases of fake invoices and supplier registrations, as the local scrap sector is unorganised, with material moving from local collectors to go-downs to aggregators, before it can be purchased by consumers.
"There are a lot of manufacturers that avoid using scrap and go for the alternate raw material, that is DRI or sponge iron, just because of this unorganised factor in the scrap industry," AIIFA president Yogesh Mandhani told Argus.
Over the past two or three years, the share of DRI in India's secondary steelmaking has increased from 15-20pc to 40-45pc at present, sources said.
Industry participants called for scrap to be taxed at a lower rate of 5pc instead of the current 18pc as it would make scrap suppliers less inclined to evade paying tax. Others also suggested scrap collection and supply could be brought under the organised sector or be heavily regulated by the government to eliminate such evasions. This would increase the availability of domestic scrap, which is needed for India's green steel transition, Mandhani said.
A government tax official present at the event said steel manufacturers would need to present the issue to the government formally before any changes can be made.
High power tariffs lift costs
Along with GST hurdles, high power tariffs have also ratcheted up costs for steelmakers in the western Indian state of Maharashtra. Electricity rates in Maharashtra currently are higher than some other steel producing regions in the country, leading to a disparity in costs, industry participants said.
But the Maharashtra government has promised to bring down power costs for both residential and industrial consumers over the next five years, offering some relief to the steel industry.
The average billing rate for industrial consumers in Maharashtra is due to fall by 8pc to 9.97 rupees/unit (11¢/unit) in the April 2029-March 2030 fiscal year compared with the 2023-24 fiscal year, the government has said.
Secondary steelmakers are mostly concentrated in the eastern part of India, which is rich in iron ore reserves, but Jalna in Maharashtra state and Mandi Gobindgarh in Punjab state also have clusters of steel rolling mills.
The primary focus of the steel industry to increase the use of renewable energy as a uniform electricity policy for power-intensive sectors would be difficult to achieve, a participant said.
