GST Reverse Charge on Waste & Scrap Notification 04/2026 | Nov 2026

What Happened?

The Central Board of Indirect Taxes and Customs (CBIC) issued Notification No. 04/2026-Central Tax (Rate) on 1 November 2026, extending the Reverse Charge Mechanism (RCM) to four key waste and scrap categories: used cooking oil, plastic waste, tyre waste, and electronic waste (e-waste). Under this new rule, recipients of these supplies must pay GST directly to the government instead of the supplier collecting it. This is a significant compliance shift for waste dealers, recyclers, manufacturing units, and businesses dealing with these materials.

Background & Legal Context

The Reverse Charge Mechanism is governed under Section 9(3) of the CGST Act, 2017, read with various CBIC notifications. The mechanism was earlier applicable to specific B2B transactions (like services from unregistered persons and supplies by composition dealers). This latest notification expands RCM to four categories of waste and scrap materials, effective immediately from 1 November 2026.

Why This Change? The waste and scrap sector has historically faced GST compliance challenges due to unorganized suppliers, fake invoicing, and ITC fraud. By shifting the tax payment responsibility to the recipient (who is usually a larger, registered entity), the government aims to:

• Reduce GST evasion in the waste trading ecosystem
• Ensure proper documentation and transparency
• Prevent misuse of Input Tax Credit (ITC) on spurious invoices
• Formalize the waste recycling sector

Legal Framework: While the CGST Act 2017 remains the primary law, GST notifications are issued under Section 172 of the CGST Act. These notifications are binding on all taxpayers from the date of notification. For Assessment Year 2026-27, taxpayers must ensure compliance with this new rule from day one.

What Does This Mean for You?

If You Are a Recipient (Buyer) of Waste & Scrap:

• You Pay GST Directly: When purchasing used cooking oil, plastic waste, tyre waste, or e-waste, you are now liable to pay GST to the government, not to the supplier. The supplier will issue an invoice without GST (or with 0% GST).
• Input Tax Credit (ITC) Available: Once you pay the GST under RCM, you can claim ITC on the same amount, provided the invoice has your GSTIN and proper documentation. This is a key relief for recipients.
• Payment Method: GST under RCM must be paid via the supplier's GSTIN, typically through the GSTR-2 form during the billing cycle. The exact mechanism will be clarified in further government guidance.
• Compliance Burden: You must maintain detailed records of all RCM transactions, including invoices, GST payment proofs, and reconciliation with supplier records. Non-compliance attracts penalties of up to 10% of tax or ₹10,000, whichever is higher.

If You Are a Supplier (Seller) of Waste & Scrap:

• No GST Collection Responsibility: You no longer collect GST from buyers. Your invoices will show 0% GST or be marked as RCM applicable.
• Simplified Billing: You issue invoices at the base price without adding GST. This simplifies your accounting, but requires clear communication with buyers about the RCM rule.
• Registration Importance: Suppliers must maintain active GST registration. Unregistered suppliers cannot benefit from the RCM framework and may face compliance issues.

Affected Materials (Effective 1 November 2026):

• Used cooking oil (UCO)
• Plastic waste (post-consumer, post-industrial)
• Tyre waste (scrap tyres)
• Electronic waste (e-waste — discarded electrical/electronic equipment)

GST Rates Under RCM: The applicable GST rates under Notification 04/2026 vary by material category (typically 5% to 18%), and the exact rate for each waste type will be detailed in the notification schedule. Taxpayers must refer to the official CBIC website for precise rates applicable to their specific waste category.

What Should You Do Now?

Immediate Action Items for Businesses:

1. Audit Your Supply Chain: Identify all suppliers and buyers of waste and scrap materials. Classify them under the four covered categories to determine who is affected.
2. Update Vendor Agreements: Modify purchase and supply agreements to reflect the RCM mechanism. Clearly state that GST will be paid under RCM and specify the recipient's responsibilities.
3. Train Your Team: Brief your accounts, GST, and procurement teams on the new RCM process. Ensure they understand invoice formats, GST payment procedures, and ITC claiming.
4. System Updates: Update your GST accounting software to flag RCM transactions separately. Ensure your GSTR-2/2A reconciliation process captures RCM payments correctly.
5. Documentation: Maintain comprehensive records of:
• All invoices for waste and scrap purchases (with supplier GSTIN)
• GST payment records under RCM
• ITC claimed on RCM amounts
• Reconciliation of RCM payments with GSTR-2A data
6. Vendor Communication: Inform suppliers that you will not accept GST charges on waste and scrap invoices from 1 November 2026. Request revised invoices showing 0% GST or RCM applicability.
7. Quarterly Compliance: File GSTR-3B with accurate RCM data. Reconcile GSTR-2A (supplier-filed invoices) with your GSTR-2 entries. Any mismatches should be resolved immediately to avoid notices.
8. Consult Your CA: If you deal in waste materials or scrap, seek guidance on how the RCM affects your specific business model. Each industry (food processing, auto parts, electronics recycling, etc.) may have unique compliance implications.

Penalty Risk: From Assessment Year 2026-27, if GST authorities find that you failed to pay GST under RCM or failed to claim ITC correctly, they can impose penalties under Section 122 of the CGST Act (negligence) or Section 123 (fraud). Non-payment of RCM tax can result in demand notices with interest at 18% per annum.

Key Takeaways

• Notification 04/2026 Effective 1 Nov 2026: Reverse Charge Mechanism now applies to used cooking oil, plastic waste, tyre waste, and e-waste. Recipients pay GST directly to the government.
• Buyers Get ITC Relief: Recipients can claim Input Tax Credit on GST paid under RCM, offsetting their overall tax burden if they are GST-registered.
• Supplier Invoices Change: Waste and scrap suppliers must issue 0% GST invoices. This simplifies their role but requires clear communication with buyers.
• Documentation & Compliance Critical: Maintain detailed records of RCM transactions, GST payments, and ITC claims. Mismatch between GSTR-2A and GSTR-2 attracts GST notices and penalties.
• Compliance Deadline Now: Businesses must implement RCM processes immediately for AY 2026-27 and file GSTR-3B reflecting RCM transactions from November 2026 onwards.

Bottom Line: Notification 04/2026 formalizes the waste and scrap sector under GST, reducing evasion opportunities but increasing compliance complexity for buyers and sellers. Businesses must update their systems, vendor agreements, and internal processes to comply from day one. Non-compliance carries significant penalties and audit risk.

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