Scraps are not the most glamorous of objects so it is not surprising that the levy of 10 per cent tax on scraps in the Finance Bill of 2003 has not attracted much attention.

However, if trade lobbies representing small businesses dealing in scraps are to be believed, the tax, called TCS by traders, would be disastrous in terms of cost for scrap consuming industries as well as the large number of businesses that thrive on sourcing and trading scraps and building them into tradeable lots.

In addition, it would put enormous pressure on the large manufacturing units, which typically generate huge quantities of scrap and currently sell them in the market.

Since 10 per cent TCS is payable at every stage scraps change hands in the course of trade, the total incidence of tax will be 30 per cent or more and this will hit scraps trade as well as scraps based industries, according to K B Agarwala, president of Kolkata's Merchants Chamber of Commerce, which has strong representation from small traders.

The point being made out by the trade was that recycling of materials was being done by enterprises dealing with scraps and the levy of sales tax on them would only increase the burden of dumping on major industries that generate scraps.

"In the case of public sector steel plants, for example, which generate huge quantities of scrap, the cost of disposal would go up and in cases may even lead to a situation where plants will have to find landfills to dump low value scrap rendered unviable by the tax," said the chief executive of a Rs 700 crore (Rs 7 billion) ferrous products manufacturing enterprise in Kolkata with a strong presence in scraps trade.

Scraps were generally traded by small enterprises, and typically a products changes hand two to three times before a proper volume can be built up.

"This means paying 10 per cent TCS thrice over, or a burden of 30 per cent," according to a note forwarded by Agarwala to the finance secretary of the government of India and the chairman of the Central Board of Direct Taxes.

Scraps include fibres like jute and cotton, metals like steel and aluminium, besides petrochemical products like plastics.

The contention of the trade is that the levy would lead to a sharp fall in recycling of materials and lead to a large scale dumping of scraps in open grounds or available landfills.

Sources in a chamber of commerce in the city said they had held discussion with their counterparts in Delhi and Mumbai, two other major scrap generating and trading centres, and a joint action against the levy was being planned.