If you deal in iron, steel, or other metal scrap, you've probably bought material from small, unregistered dealers. The invoice (or "self-invoice") for such a purchase often shows no GST amount on it, and that sometimes worries buyers — and even draws a query from the department. This post explains, in plain language, why that's completely legal, and exactly how the tax is actually paid.
1. Why the seller doesn't charge any GST
An unregistered supplier is, by law, not allowed to collect GST from a buyer. Section 32(1) of the CGST Act is clear on this — only a registered person can charge tax. So when you buy scrap from an unregistered dealer, there's nothing wrong with the invoice showing nil tax. It isn't tax escaping the system — the law has simply shifted who pays it, from the seller to the buyer.
2. The provision that shifts the liability to the buyer
This is the Reverse Charge Mechanism (RCM), defined under Section 2(98) of the CGST Act. Section 9(3) of the CGST Act (and the mirror provision in every State GST Act) empowers the Government to notify specific goods on which the recipient, not the supplier, must pay the tax.
Acting on this power, the Government issued Notification No. 06/2024-Central Tax (Rate) dated 08.10.2024, amending the parent RCM notification (04/2017-Central Tax (Rate)). This inserted a new entry covering metal scrap falling under Chapters 72 to 81 of the Customs Tariff, wherever:
- the supplier is any unregistered person, and
- the recipient is any registered person.
This came into force from 10.10.2024. The corresponding State GST notifications were issued as well, so the position holds for intra-State purchases too.
So if you're a GST-registered business buying iron/steel scrap (or any metal scrap under Chapters 72–81) from an unregistered dealer, on or after 10.10.2024, you — the buyer — are liable to pay the GST, not the seller. This applies even if the unregistered supplier's turnover is below the registration threshold; the small-supplier exemption doesn't cancel out the recipient's reverse charge liability. This position was recommended by the GST Council in its 54th Meeting (09.09.2024) and further clarified by CBIC vide Circular No. 245/02/2025-GST dated 28.01.2025.
3. Why the buyer has to raise the invoice himself
Since the unregistered supplier legally cannot issue a tax invoice, the law puts that responsibility on the buyer:
- Section 31(3)(f), CGST Act — a registered person liable to pay tax under Section 9(3)/9(4) must issue an invoice for goods received from an unregistered supplier.
- Rule 47A, CGST Rules (inserted w.e.f. 01.11.2024) — this self-invoice must be issued within 30 days of receiving the goods.
- Rule 46(o), CGST Rules — the invoice must state whether tax is payable under reverse charge. In practice, this means the self-invoice should carry a clear declaration such as "This is a self-generated invoice for reverse charge" and "Reverse Charge: Yes."
- Section 31(3)(g), CGST Act — a payment voucher is also issued at the time of paying the supplier.
A word of caution: many accounting software packages label this document a "Bill of Supply" by default, since no tax is being charged to the buyer. Don't let the caption confuse the substance — in every material respect, this document is the self-invoice contemplated under Section 31(3)(f), and it should be treated and retained as such.
The tax column on such a document typically shows the supplier as an "unregistered dealer" with nil CGST/SGST — because no tax was collected from, or paid to, the supplier. Only the value of goods is paid to him. The tax on that value is deposited by the buyer directly with the Government, as explained below.
4. How the tax actually gets paid — step by step
Let's say the buyer purchases scrap worth ₹X, taxable at 18% GST (as applicable to iron/steel scrap of HSN 7204 under Schedule III of Notification No. 01/2017-Central Tax (Rate)).
Step 1 — Determine the time of supply.
Under Section 12(3), CGST Act, this is the earliest of: date of receipt of goods, date of payment, or 30 days from the invoice date. Usually it's the date the goods are received.
Step 2 — Declare the liability in GSTR-3B.
The taxable value, along with CGST and SGST (or IGST for inter-State purchases), is reported under Table 3.1(d) — "Inward supplies liable to reverse charge" for that tax period. This creates a liability entry in the Electronic Liability Register (Form GST PMT-01). Note that Table 3.1(d) is a consolidated monthly figure — GSTR-3B doesn't allow invoice-wise reporting, so this row will include the value of every unregistered-dealer scrap purchase made that month, not just one transaction. It's a good practice to keep an invoice-wise working statement (self-invoice number, date, taxable value, CGST, SGST) reconciling to the monthly total, for your own record and for any departmental query.
Step 3 — Generate the challan.
Since reverse charge tax cannot be adjusted against Input Tax Credit (Section 49(4), CGST Act, read with Rule 85(4), CGST Rules), a challan is generated in Form GST PMT-06 for the exact CGST + SGST (or IGST) amount and paid via net banking / NEFT-RTGS before the return is filed. This is governed by Rule 87 of the CGST Rules.
Step 4 — Credit to the Electronic Cash Ledger.
On realisation of the challan, the amount is credited to the Electronic Cash Ledger (Form GST PMT-05) under the relevant tax heads.
Step 5 — Offset the liability while filing GSTR-3B.
The reverse charge liability shown in Table 3.1(d) is discharged entirely from the Cash Ledger. The GST portal itself won't let you set this off against ITC — that's the effect of Section 49(4).
Step 6 — Claim the credit.
In the same return, the ITC on this reverse charge tax is claimed under Table 4(A)(3) — "Inward supplies liable to reverse charge (other than 1 & 2 above)", on the strength of the self-invoice, as permitted under Section 16(2)(a) read with Rule 36(1)(b) of the CGST Rules — subject, of course, to the eligibility conditions of Sections 16 and 17.
Net effect: the tax is paid in cash to the Government in that very month, and an equal amount of credit is taken. There's no revenue loss — the tax stands fully deposited with the exchequer.
5. Why this credit won't show up in GSTR-2B
This confuses a lot of taxpayers. Since the supplier is unregistered, he files no GSTR-1 — so this transaction will never appear in your auto-populated GSTR-2B. That's expected and correct. Under Rule 36(1)(b) of the CGST Rules, ITC on reverse charge purchases is validly claimed on the basis of the self-invoice, combined with actual cash payment of the tax — GSTR-2B population isn't a precondition here. If your GSTR-3B vs GSTR-2B reconciliation shows a gap because of RCM purchases from unregistered scrap dealers, that gap is legitimate and explainable — not an excess or ineligible ITC claim.
Also worth noting: since this is an inward supply for the buyer and the seller is unregistered, this transaction has no place in your GSTR-1 at all — that return only reflects your own outward supplies.
6. Don't confuse this with TDS on metal scrap
A separate provision — Notification No. 25/2024-Central Tax dated 09.10.2024 — introduced 2% TDS under Section 51 on B2B supply of metal scrap, i.e., where both supplier and recipient are registered persons. RCM and this TDS provision operate in mutually exclusive situations:
- Supplier registered, recipient registered → 2% TDS applies.
- Supplier unregistered, recipient registered → RCM applies (as discussed above); TDS has no application.
7. Quick summary
- An unregistered seller cannot charge GST — so nil tax on the invoice is correct, not a red flag.
- Metal scrap (Chapters 72–81) bought from an unregistered person by a registered person has been under reverse charge since 10.10.2024.
- The buyer must raise a self-invoice within 30 days (Section 31(3)(f) read with Rule 47A).
- GST is paid in cash under RCM, reported in Table 3.1(d) of GSTR-3B, and the matching ITC is claimed in Table 4(A)(3) — subject to the usual conditions.
- The gap this creates versus GSTR-2B is expected and doesn't indicate any lapse.
- No interest applies if the liability is self-assessed and discharged within the return of the same tax period in which the supply was received (Section 39, CGST Act).
Documents worth keeping on file
For any such purchase, it's advisable to retain: the self-invoice, e-way bill, weighment slip, transporter details, supplier's identity proof, payment proof, and the relevant GSTR-3B — so that if a query ever comes from the department, you can demonstrate compliance transaction by transaction.
This post is for general informational purposes and reflects the GST law and notifications as applicable at the time of writing. For advice specific to your business, please consult a qualified professional.
