GST Registration Exemption Restricted for Scrap & Waste Suppliers (Notification 06/2026): Complete Compliance Guide for CAs & CFOs
Statutory Framework & Legal Background
The Ministry of Finance, Government of India, has issued Notification No. 06/2026-Central Tax dated 27.10.2026, amending the earlier Notification No. 05/2017-Central Tax dated 19.06.2017 under Section 23(2) of the CGST Act, 2017. This amendment restricts the blanket GST registration exemption previously available to suppliers of specified scrap and waste goods.
Under Section 23 of the CGST Act, the Central Government, on recommendations from the GST Council, may exempt persons from obtaining GST registration if their aggregate turnover in a financial year does not exceed the prescribed threshold. The earlier Notification 05/2017 granted categorical exemption to suppliers of certain waste and scrap materials, irrespective of turnover limits.
Effective from 1st November 2026, this exemption benefit is withdrawn for five specific categories of goods. Non-compliance carries serious consequences:
- Penalty under Section 122(1) CGST Act: Up to ₹25,000 for failure to obtain registration when mandatory.
- Interest Liability: Interest at 24% per annum under Section 50 CGST Act on delayed tax payment.
- ITC Disallowance: Suppliers cannot claim Input Tax Credit (ITC) on purchases if they operate without valid registration, leading to blocked credit and cascading tax impact.
- Demand & Recovery: Tax authorities can issue Show Cause Notice (SCN) under Section 73 CGST Act for retrospective demand from the effective date (1.11.2026).
Scope of Expansion: Five Categories of Goods Excluded from Registration Exemption
Effective 1st November 2026, the following five categories of suppliers must obtain GST registration regardless of turnover:
| S.No. | Category of Goods | HSN Code(s) | Description |
|---|---|---|---|
| 1 | Used Cooking Oil | 1518 | Rendered/processed oils from food waste, used in industrial applications |
| 2 | Plastic Waste & Scrap | 3915 | Waste and scrap of plastics including PET, HDPE, PVC, polypropylene |
| 3 | Tyre Waste & Scrap | 4004 | Used and discarded tyres, tyre shreds, and crumb rubber |
| 4 | Metal Scrap | Chapters 72–81 (HS) | Ferrous and non-ferrous metal waste, shavings, turnings, and offcuts |
| 5 | Electrical & Electronic Waste and Scrap | 8549 | E-waste components, circuit boards, battery scrap, copper wire scrap |
Critical Point: The amendment applies to all suppliers of these goods, regardless of their aggregate turnover. Previously, exemption was available if annual turnover was below the threshold (currently ₹40 lakhs for non-GST composition suppliers). This distinction is now eliminated for these five categories.
Step-by-Step Operational & ERP Workflow for Compliance
Phase 1: Identification & Assessment (By 31.10.2026)
- Audit Current Operations: Identify all suppliers and customers falling under the five restricted categories in your vendor master and sales ledger. Cross-reference against HSN codes 1518, 3915, 4004, 72–81, and 8549.
- Review Existing Registrations: Check whether suppliers currently hold valid GST registration. For those without registration relying on the exemption, flag for immediate action.
- ERP Tagging: Update Material Master and Vendor Master in SAP/Tally/Oracle with a custom flag: "Restricted Category – Mandatory Registration from 1.11.2026".
Phase 2: Registration & Documentation (By 15.11.2026)
- GST Registration Application: Suppliers without registration must file Form GST-REG-01 on the GST portal (www.gst.gov.in) with supporting documents: PAN, Aadhaar, business address proof, bank statement, and authorization letter.
- Vendor Onboarding: Update Vendor Master with new GST UIN, registration date, and classification (Regular / Composition, if applicable).
- Certificate Upload: Obtain and store GST Registration Certificate (Form GST-REG-06) in compliance document repository for audit trail.
Phase 3: Transactional Compliance (From 1.11.2026 onwards)
- Invoice Issuance: All invoices for restricted categories must include GST (18% or applicable rate under HSN code) and supplier's GST UIN. Configure tax master in ERP to auto-populate GST on these transactions.
- ITC Reconciliation: Claims for ITC on purchases from unregistered suppliers will be rejected. Ensure all inbound invoices for restricted categories are from registered suppliers before recording ITC.
- GSTR-1 & GSTR-3B Filings: Include restricted-category supplies in Schedule OUTWARD SUPPLIES (Part B of GSTR-1). Ensure tax rate consistency with HSN code mapping in GSTR-1.
- GST Liability Accrual: In ERP, set up automatic accrual entries for GST payable on restricted-category sales, posted to GST Payable GL account on invoice date, not payment date.
Phase 4: Audit & Controls (Ongoing)
- Quarterly Vendor Certification: Obtain written certification from suppliers that they hold valid GST registration for restricted categories.
- Exception Reports: Run ERP monthly reports comparing GSTR-3B filed vs actual ERP liability to identify gaps and misclassification.
- Supporting Documentation: Maintain GST Certificates and invoices as supporting evidence for 6 years per Section 36 CGST Act for statutory audit and department examination.
Comparison Table: Previous Practice vs New Mandate
| Parameter | Previous Practice (Under Notification 05/2017) | New Mandate (From 1.11.2026 Under Notification 06/2026) |
|---|---|---|
| 1. Registration Requirement | Suppliers of specified scrap/waste could claim exemption if turnover was below ₹40 lakhs (non-composition); no registration needed. | All suppliers of the five restricted categories must obtain GST registration, irrespective of turnover. Exemption is withdrawn. |
| 2. GST Liability on Sales | Exempt supplies; GST was not applicable. Invoices issued without GST. | Taxable supplies at applicable HSN rate (typically 5–18%). GST must be charged and remitted to government. |
| 3. ITC on Purchases | Suppliers could not claim ITC (as they were exempt from tax); cost was absorbed. | Suppliers can now claim ITC on purchases from registered vendors. Unregistered vendor invoices will result in ITC denial. |
| 4. GSTR Filing & Compliance | No GSTR filings required. Simplified compliances under Section 23 exemption. | Mandatory GSTR-1, GSTR-2B, GSTR-3B filings. Detailed supply documentation and ITC reconciliation required quarterly. |
5-Point Action Plan Checklist for Finance & Audit Teams
Execute by 30 November 2026 to ensure full compliance:
- ✔ Conduct Category Audit: Map all suppliers and products against HSN codes 1518, 3915, 4004, Chapters 72–81, and 8549. Flag restricted-category vendors currently operating without GST registration.
- ✔ Vendor Communication & Registration: Issue formal notice to all affected suppliers requiring GST registration by 15 November 2026. Collect GST Certificates and update Vendor Master in ERP with UIN and registration date.
- ✔ ERP Configuration & Tax Master Update: Configure GST tax rates for restricted categories in ERP tax engine. Set up auto-population of GST in Purchase Orders and Sales Invoices. Enable blocking of ITC for invoices from unregistered vendors.
- ✔ Accounting Policy & Liability Accrual: Revise GST accounting policy to reflect mandatory tax liability on restricted-category sales. Set up GL codes for GST Payable and train accounting teams on journal entry posting on invoice date (not payment).
- ✔ Quarterly Compliance Monitoring: Run exception reports comparing GSTR-3B liability filed vs ERP accrual. Review ITC reconciliation statements. Maintain audit trail of vendor GST Certificates and supporting invoices for statutory examination.
Conclusion & Compliance Timeline
The restriction of GST registration exemption for five categories of scrap and waste suppliers marks a major compliance shift for the recycling and waste management sectors. Businesses must transition from tax-exempt operations to full GST compliance by 1 November 2026.
Key Dates:
- 27 October 2026: Notification issued.
- 1 November 2026: Amendment effective. All suppliers of restricted categories must be GST-registered and GST-compliant.
- 30 November 2026: Recommended deadline for CFOs and audit teams to complete operational transition and first GST filing under new rules.
Non-compliance will trigger penalties under Section 122 CGST Act, interest liability, and retroactive tax demands. CAs and CFOs should prioritize vendor communication, ERP reconfiguration, and internal control review to ensure seamless transition and sustained tax efficiency.