Having failed to get any relief in Budget 2018, secondary metal producers are meeting with senior officials in the Ministry of Finance on Monday, seeking a cut in the goods and services tax (GST) from the existing 18 per cent to 12 per cent to arrest the closure of small and medium enterprises (SMEs) involved in metal recycling.
Ahead of the Union Budget, secondary metal producers under the aegis of the Metal Recycling Association of India (MRAI) had urged the government to abolish the 2.5 per cent import duty on metal scrap, which would automatically provide them a level playing field against import of finished products from FTA (free trade agreement) countries at "nil" duty. The Budget 2018, however, failed to bridge the disadvantage of inverted duty structure. Since consumer industries prefer to get primary products at nil duty from FTA countries, the demand for secondary metals has declined over the past few years.
Further, the government has levied 18 per cent GST on metal recycling, similar to that on primary metal production. Therefore, despite having several advantages for recycling of scrap in terms of mineral and energy conservation, GST levy makes secondary metal producers uncompetitive against primary producers.
"We are meeting with senior officials in the Finance Ministry on Monday seeking a cut on GST from the existing 18 per cent to 12 per cent and also to revisit FTAs with countries that export primary metals to India despite having no production facilities there," said Sanjay Mehta, the president of MRAI.
Apart from that, secondary metal producers have urged the government to start releasing input credit refund under GST, which is raising the cost of production and making SMEs uncompetitive against large producers. The industry has been paying interest to lenders on the funds blocked with the government under GST. The industry estimates around Rs 10 billion (Rs 1,000 crore) in GST refund has been accumulated since the new tax regime's implementation in July 2017.
"This delay in GST refund has caused closure of at least 25 per cent of plants, largely of small and medium size, who could not raise fresh working capital from banks due to a weak balance sheet. The secondary metal producers have lost around 15 per cent of production capacity due to this fund blockage," said Rohit Shah, the managing director of Heena Metals.
Meanwhile, the Indian metal recycling industry is passing through a tough phase because the import duty on finish products sourced from Asian countries is "nil" under FTA, while secondary metal manufacturers are paying 2.5 per cent duty on imported scrap, which is their basic raw material. The metal recycling industry is totally dependent on the import of scrap as their key raw material. It is a very difficult phase as the industry has to survive against the duty-free import of finished products.
During the past two-three years, exports of aluminium alloy from Asean countries have increased a lot. This has led to poor performance of SMEs and MSMEs working in this sector and caused unemployment.