GST on Sand – Applicable Tax Rate & Construction Impact

To buy 50 tonnes of sand for brickmaking, Jagmohan, who runs an IT Bhatta brick kiln, went to the local panchayat. The fact that sand is liable to the Goods and Services Tax (GST) shocked him.

For example, under HSN code 2505, natural sand used in buildings is subject to 5% GST. The GST adds ₹30 per tonne to the price of sand, which comes to ₹1,500 in tax for 50 tonnes at a price of ₹600 per tonne. The GST rate can reach 18% for speciality types, such as fly ash sand combinations, which greatly impacts input costs.

GST on Sand – Create a Table Mentioning Different Categories of Sand with Price and Applicable GST Rate
 

Notes:

• Natural Sand: Includes all types of natural sand, such as river sand, and is classified under HSN code 2505, attracting a GST rate of 5%.
   
• Silica Sand / Quartz Sand: Covered under HSN code 250510, these sands are also subject to a 5% GST rate.
   
• Fly Ash Products: Fly ash bricks, fly ash blocks, and fly ash aggregates containing 90% or more fly ash are classified under HSN code 68159910 and attract a reduced GST rate of 5%.

Impact of GST on the Sand Industry with Examples

• Pricing Dynamics: The GST rate of 5% on natural sand has led to increased transparency in pricing. However, in regions where sand mining is restricted or banned, such as Bihar, the shortage has caused prices to escalate sharply. 
   

For instance, before the ban, sand prices ranged from ₹300–₹350 per tonne, but post-ban, they surged to ₹1,100–₹1,400 per tonne in the grey market.
 

• Supply Chain Disruptions: Regulatory measures, like the National Green Tribunal's ban on sand mining during the monsoon season, have disrupted the supply chain. These restrictions, coupled with illegal mining crackdowns, have exacerbated shortages, affecting construction timelines and costs.
   
• Shift to Manufactured Sand (M-Sand): To mitigate the impact of natural sand shortages, there is a growing shift towards manufactured sand (M-Sand). M-sand is produced from crushed granite stones and is gaining acceptance as a viable alternative, especially in regions facing sand scarcity.
   
• Economic Implications: The sand industry's challenges have a cascading effect on the construction sector. In eastern India, for example, cement sales growth projections were halved due to sand shortages, impacting overall construction activities.

Supply Chain Challenges After GST Implementation

The implementation of the Goods and Services Tax (GST) in India has significantly transformed the logistics and supply chain landscape, particularly in sectors like sand and construction materials. While GST aimed to streamline operations by eliminating multiple state and central taxes, its impact on the sand industry's supply chain has been multifaceted.

Pre-GST Supply Chain Complexities:

Before GST, India's supply chain was characterised by:

• Multiple Taxation Points: Goods were subject to various taxes at different stages, leading to increased costs and delays.
   
• State-Specific Regulations: Each state had its own set of rules and taxes, complicating interstate transportation and logistics.
   
• Numerous Checkpoints: Frequent tolls and checkposts at state borders resulted in significant delays.
   

These factors collectively increased transit times and costs, affecting industries reliant on timely deliveries.

Post-GST Supply Chain Enhancements:

Post-GST, several improvements were observed:
 

• Elimination of State Border Checkposts: The introduction of the e-way bill system reduced stoppages at state borders, leading to faster movement of goods.
   
• Centralised Warehousing: Businesses could now consolidate warehouses, reducing overhead costs and improving inventory management.
   
• Reduced Logistics Costs: Streamlined processes and reduced transit times led to cost savings in transportation.

For instance, a study indicated that logistics costs in India were reduced by 10-15% post-GST implementation.

Challenges in the Sand Industry Post-GST

Despite the overall improvements, the sand industry faced unique challenges:

• Mining Bans: Regulations like the National Green Tribunal's ban on sand mining during the monsoon season disrupted supply chains.
   
• Price Volatility: In states like Bihar, sand prices surged from ₹300–₹350 per tonne to ₹1,100–₹1,400 per tonne due to supply shortages.
   
• Transition to Manufactured Sand (M-Sand): The scarcity of natural sand led to increased demand for M-sand, altering traditional supply chains.

Example: Impact on Transportation Costs:
 

Note: The reduction in transportation costs is attributed to the elimination of state border checkposts and the introduction of the e-way bill system.

Broader Industry Implications:

The sand industry's supply chain challenges had ripple effects on related sectors:

• Cement Industry: In East India, cement sales growth projections were halved due to sand shortages, impacting overall construction activities.
   
• Construction Delays: Projects faced delays as the availability of sand, a critical raw material, became uncertain.

While GST has brought about significant improvements in India's supply chain efficiency, sectors like the sand industry continue to face challenges due to regulatory restrictions and market dynamics. Addressing these issues requires a balanced approach that considers both environmental concerns and the need for a steady supply of construction materials.

Input Tax Credit (ITC) on Sand

Eligibility for ITC on Sand

Sand, classified under HSN Code 2505, attracts a GST rate of 5%. Registered manufacturers and service providers using sand as an input for producing taxable goods or services are eligible to claim ITC on the tax paid for sand purchases. However, the credit is subject to the following conditions:

1. Possession of Valid Documents: The purchaser must have a valid tax invoice, debit note, or any other prescribed document evidencing the payment of tax.
    
2. Receipt of Goods: The goods (sand) must be received by the purchaser.
    
3. Tax Payment: The supplier must have paid the tax to the government.
    
4. Furnishing of Returns: The supplier must have furnished the details of the outward supply in their GST returns.

These conditions are outlined in the Central Goods and Services Tax (CGST) Act and related rules.

Example: ITC on Sand Purchase:

A registered brick manufacturer in Delhi purchases 100 tonnes of river sand at ₹700 per tonne.

• Total Purchase Value: 100 tonnes × ₹700 = ₹70,000
• GST @ 5%: ₹70,000 × 5% = ₹3,500
• Total Invoice Value: ₹70,000 + ₹3,500 = ₹73,500

ITC Calculation:

• Eligible ITC: ₹3,500 (assuming all conditions are met)
• Net Cost to Manufacturer: ₹73,500 - ₹3,500 = ₹70,000

In this example, the manufacturer can reduce their tax liability by ₹3,500 through the ITC mechanism, effectively lowering the cost of procurement.

Important Considerations
 

• Matching of Invoices: The details of the inward supply must match with the corresponding outward supply details furnished by the supplier in their GST returns.
   
• Reversal of ITC: If the supplier fails to pay the tax to the government within a specified period, the purchaser may be required to reverse the ITC claim.
   
• Documentation: Proper documentation, including valid tax invoices and payment receipts, must be maintained to substantiate the ITC claim.

Conclusion

GST on sand is usually charged at 18% GST based on government rules. It helps regulate the sale and use of sand in construction and other industries. Overall, GST on sand ensures fair taxation and smooth trade. This makes it easier for businesses to follow the law and pay the right amount of tax.

FAQs Related to GST on Sand

Q. What is the GST rate applicable to natural sand?

The GST rate on natural sand is 5% under HSN code 2505.

Q. Is Input Tax Credit (ITC) available on sand purchases?

Yes, ITC is available if the sand is used for making taxable supplies and other GST conditions are met.

Q. Does M-Sand (Manufactured Sand) attract GST?

Yes, M-Sand also attracts 5% GST under the same HSN code.

Q. Can sand be used in an exempted supplies claim ITC?

No, ITC cannot be claimed if sand is used to produce exempted goods or services.
 

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