The revision puts the onus of collecting goods and services tax (GST) on the seller and buyer, who give and take delivery on the exchange platform. Up until now, MCXCCL would facilitate the payment of GST from buyer to seller through the exchange’s clearing members. However, the clearing corporation last week said beginning 29 December, the seller must directly collect GST from the buyer.
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“As part of the revised settlement process, MCXCCL will facilitate sharing GST details of the buyer with seller. The payment of funds pertaining to tax component of the invoice will have to be done by buyer to seller directly. The buyer/seller clearing member or their associates would be solely responsible for all statutory compliances applicable to their transactions… MCXCCL will not be held responsible or liable for any default due to non-compliance from buyer or seller clearing member or their associates on tax matters,” the clearing corporation said in a circular seen by Mint.
IBJA, whose gold rates are used by the Reserve Bank of India (RBI) in pricing sovereign gold bonds, will send its representation against the revision to the exchange and its clearing corporation on Monday, national secretary Surendra Mehta said.
“It is very surprising that the clearing corporation wants to settle delivery of goods even when full payment is not received by the seller. The seller opts to trade on the exchange for the reason that full payment is guaranteed by the exchange. If full payment is not guaranteed by the exchange, as per the new circular, why would someone trade on the exchange?” Mehta questioned.
A Multi Commodity Exchange of India Ltd (MCX) official was not immediately available for comment.
However, a person aware of the development said on the condition of anonymity that the revision would shield the clearing corporation from becoming party to any potential legal case involving non-grant of input tax credit (ITC) by GST authorities to the buyers.
When a jeweller buys a gold bar on the exchange platform, he first pays the seller the settlement price of the contract on a T+1 basis, or the day after the trade, in exchange for the title of goods lying in the exchange vault. However, before removing the goods from the exchange vault, the jeweller has to pay 3% GST on gold to the seller on the second day after the settlement of the trade against an invoice raised by the seller. Both the primary (settlement price) and the secondary (GST payment) transactions are currently facilitated by MCXCCL through the respective clearing members of the buyer and the seller.
Once the jeweller melts the gold, makes jewellery and sells it, he collects 3% GST on the ornament from the buyer. While depositing tax with the GST authorities, he claims the credit on the tax he paid to the seller while taking delivery on MCX. If for any reason, GST authorities refuse the ITC claim and the jeweller seeks legal redress, he can make the MCXCCL a party to the case as the settlement between the jeweller and the seller was facilitated by the clearing corporation.
“The exchange is a marketplace where buyers and sellers trade and give or take delivery anonymously. Despite not knowing one another, they trade because settlement is guaranteed by the exchange’s clearing corporation; in short, counterparty risk is mitigated,” the person cited above said.
“However, concerns over getting dragged into legal cases involving ITC being denied has led to MCXCCL opting out of facilitating payment of tax component between the buyer and seller, though the exchange of details like GST number of buyer, invoice details of seller, etc., will still be provided by MCXCCL to the clearing members of the buyer and seller. But, come December-end, the payment of tax will have to be done directly between seller and buyer with no role of the clearing corporation in this aspect,” he added.
“If this issue precipitates, it could impact trading volumes on MCX and, consequently, revenues of the exchange,” said Naveen Mathur, director (commodities and currencies), Anand Rathi Share and Stock Brokers Ltd.
“Initially, there could be an impact on volumes, but in the long term, I guess things should settle down,” said Deven Choksey, managing director, KRChoksey Shares and Securities Pvt. Ltd.
A person familiar with MCX’s thinking said there were a few cases among base metals traders where ITC claims were disallowed after a year or a year and a half. Though MCX was not made a party to any of these cases, the circular is an attempt to prevent any such possibility, the person said on the condition of anonymity.
Though the revised circular will also apply to base metals and certain agri non-processed contracts traded on MCX, the most vociferous protests are from the precious metals trade, given the high-value nature of their transactions.
The publicly traded metals and energy bourse MCX had a 99.14% market share in commodity derivatives segment in September, followed by agri derivatives bourse NCDEX (0.82%) and NSE (0.03%), according to latest regulatory data. Overall commodity derivatives turnover in September stood at ₹24.53 trillion, of which MCX accounted for ₹24.32 trillion.
Since inception in 2003, MCX has seen delivery volumes of 136 tonnes in gold and 4,672 tonnes in silver till June 2023. MCX gold contract price includes import duty of 15% on the metal, but excludes the 3% GST on gold.
In the September quarter, MCX posted a net loss of ₹19 crore on revenue of ₹165 crore, against a profit of ₹63.2 crore on net sales of ₹127.4 crore a year earlier. The loss was attributed to a surge in software support charges from its erstwhile vendor 63 Moons of ₹134.5 crore against just ₹21.8 crore in the year-ago quarter