GST and tax compliance for steel and metal trading businesses
A steel trader running 3% gross margin on ₹20 crore of turnover has more input tax sitting in the credit ledger than net profit for the year. One supplier who does not file, one e-way bill that expires in transit, one scrap purchase from an unregistered kabadi that nobody flagged for RCM — and the recovery costs more than the margin on the deal. We handle compliance for steel and metal traders including Prabhat Steel Industries.
What makes metal trading compliance different
Volume and margin. Those two facts explain nearly every compliance problem in this trade.
Volume means that reconciliation is not a task, it is an operation. A mid-sized TMT or structural steel dealer books hundreds of purchase invoices a month across mills, stockists and traders, moves goods on dozens of e-way bills, and issues credit notes for rate differences and weight shortages that then have to be matched back to the original invoice in a later period. At that scale, manual matching does not just take longer — it fails differently, because the errors hide in the tail.
Margin means there is no cushion. A 2–4% gross margin on a ₹1 crore consignment is ₹2–4 lakh. An 18% credit denial on the same consignment is ₹18 lakh. The arithmetic of a single denied credit against a year's profit on that customer is not close. It also means that a large slice of your working capital lives permanently in the electronic credit ledger, funded by borrowing, earning nothing.
The traps that actually cost money
GSTR-2B reconciliation at volume
Since 1 January 2022, section 16(2)(aa) makes credit available only where the supplier has furnished the details and they appear in your GSTR-2B. The Invoice Management System introduced in October 2024 lets you accept, reject or keep invoices pending before 2B is generated, which is genuinely useful — but only if someone acts on it within the window. From July 2025 the auto-populated liability in GSTR-3B is hard-locked, so the older habit of claiming provisional credit and sorting it out afterwards is no longer available.
Then there is the three-year outer limit on filing returns, in force from 1 July 2025 (operationalised from the October 2025 tax period): once a return period is more than three years past due, the portal will not accept it. For traders sitting on old unreconciled periods, that clock has already started.
The reconciliation itself has to run at three levels — invoice-to-invoice, GSTIN-to-GSTIN summary, and ledger-to-return — because volume hides errors that a single-level match will not surface. A supplier who has filed the invoice with the wrong GSTIN, or filed under B2C, or filed in the wrong period, will show as "missing" at invoice level and "matched" at summary level.
Scrap, RCM and GST TDS
Since 10 October 2024, two separate mechanisms apply to metal scrap falling under Chapters 72 to 81:
| Supplier | Recipient | Mechanism |
|---|---|---|
| Unregistered | Registered | Reverse charge on the recipient (Notification 06/2024-CTR) |
| Registered | Registered | GST TDS at 2% by the recipient (Notification 25/2024-CT) |
| Registered | Unregistered | Neither |
| Unregistered | Unregistered | Neither |
The RCM leg means a registered buyer purchasing scrap from an unregistered supplier must self-invoice, pay tax in cash, and then take credit. The TDS leg applies where the value of supply under a contract exceeds ₹2.5 lakh, requires the buyer to take a separate registration as a deductor, and to file GSTR-7 by the 10th of the following month with a TDS certificate to the supplier. Traders who deal in scrap alongside their main line frequently discover the deductor registration requirement only when a supplier asks where his TDS credit is.
E-way bills on bulk movement
The mechanics matter more here than anywhere else, because steel moves in full truckloads over long distances and often waits at the buyer's gate.
Validity is one day for every 200 km (or part thereof) for regular cargo and one day per 20 km for over-dimensional cargo, counted from the time the Part-B transporter details are entered. Extension is available from eight hours before to eight hours after expiry, and since 1 January 2025 the total validity cannot be extended beyond 360 days from original generation. From the same date, an e-way bill cannot be generated against a document dated more than 180 days earlier — which matters for goods lying on a delivery challan or moving against an old invoice.
Detention under section 129 for an expired or defective e-way bill is not a small penalty. It is tax plus a penalty equal to the tax, and the vehicle stays where it is until it is paid.
The section 63 audit trigger meeting thin margins
Under section 63 of the Income-tax Act 2025 (formerly 44AB), audit is required above ₹1 crore turnover, or ₹10 crore where cash receipts and cash payments are each within 5%. Most steel traders are comfortably above ₹10 crore and audited anyway, so that is not the interesting part.
The interesting part is the presumptive interaction. Section 58 of the 2025 Act consolidates the old 44AD, 44ADA and 44AE, with Sl. 1 covering ordinary business at 6% (digital receipts) or 8%. A number of commentators read section 63 as creating a standalone audit requirement wherever an eligible assessee declares profit below the deemed rate, whether or not he ever opted into the presumptive scheme — which would be a real change from the position under 44AB. For a trader genuinely earning 2.5% net, that reading converts a commercial reality into a compliance obligation and, more to the point, into a scrutiny flag. The reading is contested and there is no settled clarification yet; we are advising clients to assume it applies and to have the margin evidence ready either way.
Thin margins also make you a natural target for a different reason: assessing officers do compare declared gross profit to trade norms, and a trader who cannot produce stock records, weighment slips and freight documents tying purchases to sales has a difficult conversation ahead.
TDS on purchases under section 393(1) Sl. 8(ii) (formerly 194Q)
If your turnover exceeded ₹10 crore in the preceding year, you must deduct 0.1% on purchases of goods from a resident seller above ₹50 lakh in aggregate for the year, on the value in excess of ₹50 lakh, excluding separately shown GST. Failure to deduct triggers disallowance of 30% of the purchase value, which for a steel trader is a catastrophic number relative to profit.
Note that TCS on sale of goods under the old section 206C(1H) was withdrawn with effect from 1 April 2025, removing the overlap that used to cause endless argument between buyers and sellers about who deducts. The remaining TCS provisions on scrap sales are a different entry and continue to apply.
Working capital locked in the credit ledger
Inverted duty is not usually the issue in steel trading — input and output are typically both at 18%. The issue is accumulation from timing: you pay tax on purchases now and recover it against output tax as stock sells, and if stock turns in 60 days, roughly two months of input tax is permanently parked. Add credits held up by supplier non-filing and the number grows. Refund is not available for simple accumulation, so the only levers are supplier discipline, purchase timing and stock turn. We measure it for clients because most traders have never seen the figure expressed as a proportion of their working capital.
What we do for metal trading clients
The core of the engagement is a reconciliation discipline that runs on a calendar rather than on memory. Purchase register against 2B before the 20th, with a supplier-wise exception list issued to your team early enough to chase; IMS actions taken within the window rather than after; credit notes tracked to their original invoice; and a rolling record of credits at risk so that nothing quietly ages past recovery.
Around that we run e-way bill controls — a check that Part-B is filled at despatch and not at the gate, validity monitoring on long-haul consignments, and a documented process for extension so the driver is not deciding it at a check post. We handle scrap RCM identification and self-invoicing, the deductor registration and GSTR-7 filings where you buy registered scrap, and TDS under section 393(1) Sl. 8(ii) with the annual ₹50 lakh tracker per supplier so deduction starts on the right invoice.
On the income-tax side: the section 63 audit, stock and gross-profit documentation prepared before the return rather than after a notice, and advance tax planning against a margin that moves with mill prices.
We also do the unglamorous work that decides audits — stock records that tie to weighment, transporter documents filed against invoices, and a purchase file that a departmental officer can follow without asking you a single question.
What it costs
| Engagement | Indicative fee |
|---|---|
| GST compliance with 2B reconciliation, up to 300 invoices/month | ₹10,000 – ₹18,000 per month |
| High-volume reconciliation, 300–1,500 invoices/month | ₹18,000 – ₹40,000 per month |
| GST TDS deductor registration and GSTR-7 filings | ₹2,500 – ₹6,000 per month |
| Section 63 tax audit and return | ₹40,000 – ₹1.25 lakh per year |
| ITC recovery review on past periods | Quoted after a sample check |
| Section 129 detention or notice response | Quoted on the notice |
Volume, number of GSTINs and the state of the existing purchase register drive the fee. We will run a free sample reconciliation on one month of your data before quoting, so both sides know what the work actually involves.
Common questions
A supplier has not filed his GSTR-1 for three months and my credit is stuck. What are my options?
Legally, section 16(2)(aa) makes 2B appearance a condition, so the credit is not available until he files. Commercially, your leverage is the unpaid tax component of his invoice — the standard practice we set up for clients is to release the taxable value on schedule and the GST component only after the invoice reflects in 2B. Courts have occasionally granted relief where the buyer proved payment and genuineness and the supplier had absconded, but those are hard-fought exceptions, not a plan.
I buy scrap from local kabadis who have no GST number. What do I have to do?
Since 10 October 2024, purchases of metal scrap under Chapters 72 to 81 from an unregistered person by a registered person are under reverse charge. You raise a self-invoice, pay the tax in cash — it cannot be set off from the credit ledger — and then claim it as input credit in the same or a subsequent period. Missing this is one of the more common findings in scrutiny of metal traders, and interest runs from the original due date.
My truck was detained because the e-way bill expired. Can I just extend it?
Extension is only possible within the window from eight hours before expiry to eight hours after it. Once that window closes, you are into section 129 territory, which means tax plus an equal penalty before the vehicle is released. For long-haul consignments the fix is procedural, not legal: validity is one day per 200 km from the time Part-B is entered, so entering Part-B at despatch rather than at loading, and monitoring expiry on the road, prevents most of these.
My net margin is around 2.5%. Does that force a tax audit?
Possibly. Under section 44AB, declaring low profits did not by itself require audit unless you had opted into 44AD and exited within five years. Section 63 of the 2025 Act is read by many commentators as creating a standalone trigger where an eligible assessee declares profit below the deemed rate, regardless of prior opting-in. That reading is contested and untested. In practice, if your turnover is above ₹10 crore you are audited anyway on the turnover limb, so it matters most for smaller traders — and either way, low declared margin invites scrutiny, so the stock and gross-profit documentation is the real work.
Do I still need to collect TCS on sales as well as deduct TDS on purchases?
TCS on sale of goods under the old section 206C(1H) was withdrawn with effect from 1 April 2025, so the buyer-versus-seller overlap that dominated 2021 to 2024 is gone. What remains is TDS on purchases, now under section 393(1) Table Sl. 8(ii) (formerly 194Q), at 0.1% above ₹50 lakh per seller per year where your prior-year turnover exceeded ₹10 crore. TCS on scrap under the separate section 206C entry is a different provision and continues.
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