GST 2.0 and the Circular Economy: What the 57th GST Council Means for India’s Scrap and Recycling Industry

Introduction: a meeting the scrap trade cannot ignore

For the recycling value chain, one recommendation stands above the rest. Waste and scrap of plastics, electrical and electronic waste, waste tyres and used cooking oil (UCO) are to be brought under the Reverse Charge Mechanism (RCM) when bought from unregistered persons. Business-to-business sales of the same material will attract Tax Deducted at Source (TDS) at 2%. This extends to four new streams the model applied to metal scrap since October 2024.

Around that core sits a wider package that speaks directly to the sector’s long-running grievances. Arrest powers under GST are to be withdrawn, the prosecution threshold raised from ₹1 crore to ₹5 crore, e-way bill interceptions restricted, blocked credit ledgers made subject to a hearing, and refunds largely automated. This article reads the 57th Council’s recommendations through the lens of the people who collect, aggregate, process and re-sell secondary raw material.

Why GST has been hard on the circular economy

India’s recycling economy rests on an informal base. Rag-pickers, kabadiwalas and small aggregators collect material that eventually reaches registered processors, re-rollers, granulators and refiners. Almost none of the first-mile suppliers are GST-registered, yet the processors who buy from them are, and must pay tax on their sales.

That structural gap has produced four recurring problems:

• Fake invoicing. Because genuine sellers could not issue tax invoices, a market grew in paper firms that “billed” scrap they never supplied. Scrap has consistently featured among the sectors most associated with fictitious input tax credit (ITC) in enforcement drives.
• ITC denial and blocked ledgers. Genuine buyers have seen credit denied, or their electronic credit ledgers blocked under rule 86A, because a supplier several layers up the chain turned out to be bogus or had its registration cancelled.
• Coercive action. Arrests under section 69, prosecutions under section 132 and detention of trucks under sections 129 and 130 have hit the trade hard, often over disputes that were essentially about documentation.
• Working capital lock-up. Recyclers who export, or who sit in an inverted duty position, have waited on refunds while carrying high-value inventory.

The government’s response for metal scrap came after the 54th Council meeting. With effect from 10 October 2024, metal scrap bought from unregistered persons moved to RCM, and B2B sales of metal scrap became subject to 2% TDS under section 51 of the CGST Act. The 57th meeting now takes that template to other waste streams, while separately easing the coercive and procedural pressures that the whole trade has felt.

The decisions, read through a circular-economy lens

1. RCM and 2% TDS for plastic, e-waste, tyre and UCO scrap

This is the recommendation that most directly reshapes the sector. The Council has recommended that:

• waste and scrap of plastics, electrical and electronic waste, tyres and used cooking oil be taxed under RCM when supplied by an unregistered person to a registered person;
• the recipient pay tax under RCM even if the supplier is below the registration threshold, while the supplier must register once it crosses the threshold;
• TDS at 2% apply when such waste and scrap is supplied by one registered person to another (B2B).

The logic mirrors metal scrap. RCM moves the tax liability from the informal collector, who cannot or does not pay, to the registered recycler, who can. That removes the commercial reason to buy a fake invoice to “cover” a cash purchase. TDS at 2% on B2B sales creates a contemporaneous trail of tax deducted by the buyer, making it harder for a paper firm to collect tax and vanish.

The choice of streams is telling. Three of the four are governed by Extended Producer Responsibility (EPR) regimes: the Plastic Waste Management Rules, the E-Waste (Management) Rules, and the EPR framework for waste tyres. Used cooking oil feeds the biodiesel and sustainable aviation fuel programmes. Recyclers in the EPR streams generate certificates that producers buy, so the credibility of their purchase records matters beyond GST. A cleaner tax trail at the point of collection should strengthen the audit trail that EPR certificates depend on.

The cost is a cash-flow and compliance load on registered recyclers. They will pay RCM tax in cash and take credit afterwards. Their B2B sales will see 2% withheld, which will sit in the electronic cash ledger until used or refunded. Each purchase from an informal collector will need a self-invoice and a payment voucher. The Council’s separate recommendation to extend e-invoicing to RCM purchases from unregistered persons for taxpayers with turnover of ₹5 crore and above means larger recyclers will likely have to generate e-invoices for these inward supplies as well.

2. Decriminalisation: no arrest, a ₹5 crore prosecution floor

The Council has recommended complete withdrawal of arrest powers by omitting section 69 of the CGST Act. The monetary threshold for prosecution rises from ₹1 crore to ₹5 crore. Section 132(1) is narrowed: the general “evades tax” limb and the “or in any other manner deals with” wording are to be deleted, and clause (c) will cover only fraudulent availment of ITC without receipt of goods or services, or without an invoice.

For a sector where arrests have often followed disputes over the genuineness of a supplier several steps removed, this is significant relief. It is not an amnesty. Claiming ITC on invoices with no underlying goods remains squarely an offence, and that is exactly the conduct fake-invoice networks in scrap engage in. The message is that the criminal process is to be reserved for deliberate fraud, not for traders caught downstream of it.

3. E-way bills: fewer roadside detentions

Scrap moves in bulk, by road and often across States, and trucks have been a frequent target of detention. Under the recommended amendments to sections 68, 129 and 130:

• a conveyance can be intercepted only on specific intelligence and with authorisation from an officer not below Joint Commissioner;
• detention or seizure can be taken up only in the State where the supplier or recipient is located or registered, with no interception in transit States;
• confiscation under section 130 will not apply to goods or conveyances in transit.

The exception matters for this trade. Where no e-way bill has been generated, or the vehicle carries no document showing origin or destination, goods can still be detained anywhere. The relief is real for documented consignments, and none for undocumented ones.

4. A hearing before the credit ledger is blocked

The Council has recommended amending rule 86A to let a taxpayer file an objection against blocking of its electronic credit ledger and to be heard before the officer decides. Blocked ledgers have been one of the sharpest working-capital shocks for recyclers whose suppliers were later found non-existent. A formal right to object does not guarantee unblocking, but it ends the practice of blocking first and explaining later.

5. Smoother ITC and refunds

Several changes help capital-intensive and export-oriented recyclers:

• Automated refunds. Excess cash-ledger balances will be refunded automatically, and 90% of refund claims for zero-rated supplies and inverted duty structures will be sanctioned provisionally by the system. Acknowledgement time falls from 15 to 10 days. This matters more now that RCM and TDS will push more cash into recyclers’ ledgers.
• Refund of ITC on capital goods and input services. Refunds for inverted duty structures will cover input services (ITC availed on or after 1 November 2026) and capital goods (ITC availed on or after 1 April 2027, spread over 60 months). Shredders, extruders, pyrolysis units and refining plants are capital goods, so this matters for recyclers that sell at lower rates than they buy.
• Blocked credits narrowed. Section 17(5) will no longer block ITC on goods destroyed or written off on expiry of shelf life as required by law, pipelines laid outside factory premises, and health and life insurance, among others.

6. Reuse and second life: retreaded tyres and second-hand vehicles

Two rate clarifications reward reuse directly. The GST rate on retreaded tractor tyres will be aligned with the rate on new tractor tyres, correcting an anomaly that had made the retreaded product, the circular option, costlier to choose. And suppliers of second-hand vehicles under the margin scheme are clarified to be entitled to ITC on spares, repair and maintenance, technology, rent and marketing services; only tax on the vehicle itself is restricted. That helps refurbishment and resale businesses that keep vehicles in use for longer.

7. Less litigation over small sums

No show cause notice will issue where tax involved is below ₹10,000, and pending matters below that figure will be decided as if the threshold had always applied. The maximum general penalty under section 125 drops from ₹25,000 to ₹10,000. In non-fraud cases, penalty falls to 5% if tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the order. For penalty-only orders, pre-deposit for appeal is capped at ₹40 crore. Recyclers named as co-noticees in large fake-invoice cases have often faced exactly such penalty-only demands.

8. Registration: faster, more predictable, less discretionary

A circular will specify the documents needed for registration, with drop-down choices in FORM GST REG-01. Amendments other than to the principal place of business will be accepted automatically. Cancellation on application will become system-driven, and some grounds for suo-moto cancellation by officers will be omitted. For buyers whose credit has depended on suppliers’ registrations staying alive, more predictable registration is a quiet but genuine benefit, and it eases the path for informal collectors who now need to register once they cross the threshold.

At a glance

What remains open

The package is welcome, but several gaps and risks deserve attention.

• These are recommendations, not yet law. The PIB release itself notes that the decisions take effect only through circulars, notifications and law amendments. Rate-side changes such as the RCM and TDS extension can come by notification. Changes to sections 69, 132, 129 and 130 need amendments to the CGST Act. Until each is notified, existing provisions apply.
• Working-capital strain from RCM plus TDS. A recycler that pays RCM in cash on purchases and suffers 2% TDS on sales can accumulate cash-ledger balances. Automated refund of excess cash-ledger balance helps only if it works as promised.
• Classification disputes. Which items count as “waste and scrap” of plastics, e-waste or tyres, versus reusable goods, second-hand products or semi-processed material such as flakes, granules or crumb rubber? The answer decides whether RCM and TDS apply. Clear notification language and FAQs will be essential.
• The informal first mile. RCM brings the tax in at the recycler, but collectors who cross the threshold must still register. Many will not, or will split trade to stay below it. Policy on onboarding informal workers remains a separate task.
• Bona fide buyers. The release does not contain a general rule protecting a buyer’s ITC when an upstream supplier defaults, which the sector has long sought. Protection still rests on case law and on the buyer’s own documentation.
• Retrospective validation. The Council has recommended a validation clause for notices struck down by courts because they covered multiple financial years. Some taxpayers who won on that ground may see those notices revived.
• Compliance dates. The new returns mechanism, including the electronic statement of RCM tax and ITC under proposed rule 86D, is slated to apply from the April 2027 return. Recyclers should plan their systems around that date.

What recyclers and scrap dealers should do now

• Map purchases by stream and supplier status. Identify how much plastic, e-waste, tyre and UCO scrap comes from unregistered suppliers. That volume will move to RCM and will need cash to pay the tax.
• Set up self-invoicing and payment vouchers. Build the process for every RCM purchase, and check whether your turnover of ₹5 crore or more will bring these inward supplies under e-invoicing.
• Prepare for TDS on both sides. As a buyer, register for and deduct 2% TDS on B2B purchases; as a seller, reconcile TDS credits in the cash ledger and plan refund claims.
• Model the cash-flow impact. Estimate RCM cash outgo and TDS withheld on sales, and line them up against expected automated refunds.
• Tighten movement documentation. The e-way bill relief protects only documented consignments. Make sure every load carries an e-way bill and origin and destination papers.
• Keep supplier due-diligence files. Retain GSTIN checks, weighbridge slips, transport records, photographs and bank payment trails. These are what separate a genuine buyer from a fake-ITC case, which remains prosecutable.
• Review pending disputes. Check for show cause notices below ₹10,000, penalty-only orders that may benefit from the ₹40 crore pre-deposit cap, and multi-year notices that may be revived by the proposed validation clause.
• Track the notifications. Watch for the CBIC rate notifications, FAQs on the scope of “waste and scrap”, and the CGST Act amendments that will carry the process reforms.

Conclusion

The 57th GST Council has given the circular economy a two-sided package. On one side, it extends the metal-scrap model of RCM and 2% TDS to plastics, e-waste, tyres and used cooking oil, closing the space in which fake invoices have thrived. On the other, it removes arrest powers, raises the prosecution floor to ₹5 crore, restrains roadside detentions, adds a hearing before credit is blocked, and speeds up refunds.

Taken together, the reforms push the recycling trade towards formality while lowering the fear that has kept many honest operators away from it. The outcome now depends on drafting and implementation: precise definitions of what counts as scrap, refunds that actually arrive on time, and field officers who apply the new restraint. If those hold, GST could become an enabler of India’s circular economy rather than one of its frictions.

Disclaimer: This article is based on the GST Council’s recommendations as published by the Press Information Bureau on 8 October 2026. The recommendations take effect only through notifications, circulars and amendments to law. Readers should consult the notified provisions and seek professional advice before acting.

Sources

• Press Information Bureau, Ministry of Finance, Recommendations of the 57th Meeting of the GST Council, 8 October 2026 (Release ID 2320934)
• VJM Global, TDS and GST under RCM on Supply of Metal Scrap w.e.f. 10.10.2024
• BigMint, India: CBIC notifies 2% TDS on metal scrap transactions