The revision puts the onus of collecting goods and services (GST) on the seller and buyer who give and take delivery on the exchange platform. Until now, MCXCCL would facilitate the payment of GST from buyer to seller through the clearing members of the exchange. However, the clearing corporation last week said from 29 December, the seller must directly collect GST from the buyer.
“As part of the revised settlement process, MCXCCL will facilitate sharing of GST details of the buyer with seller. The payment of funds related to tax component of the invoice will have to be made by buyer to seller directly. The buyer/seller clearing member or their associates would only be responsible for all legal compliances applicable to their transactions…MCXCCL will not be held responsible or liable for any default due to non-compliance by a 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 review to the exchange and its clearing corporation on Monday, national secretary Surendra Mehta said.
“It is very surprising that the clearing corporation wants to arrange delivery of goods even when full payment is not received from the seller. The seller chooses 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, according to the new circular, why would anyone trade on the exchange?” Mehta asked.
An official of Multi Commodity Exchange of India Ltd (MCX) was not immediately available for comment.
However, a person aware of the development said on the condition of anonymity that the audit would shield the clearing corporation from becoming a party to any possible legal case involving non-granting of input tax credit (ITC) by GST authorities to the buyers.
When a jeweler buys gold bullion on the exchange platform, he first pays the seller the compensation price of the contract based on T+1, or the day after the trade, against the title of goods lying in the exchange treasury. However, before removing the goods from the exchange vault, the jeweler must 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.
After the jeweler melts the gold, makes jewelery and sells it, he collects 3% GST on the jewelery from the buyer. While depositing tax with the GST authorities, he claims the credit on the tax he paid to the seller by supplying MCX. If for any reason, GST authorities reject the ITC claim and the jeweler seeks legal compensation, he can make the MCXCCL a party to the case as the settlement between the jeweler 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 each other, they trade because settlement is guaranteed by the clearing corporation of the exchange; in short, counterparty risk is mitigated,” said the above quoted a person
“However, concerns about being dragged into legal cases involving ITC refusal caused MCXCCL to choose not to facilitate payment of tax component between the buyer and seller, although the exchange of details such as 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 made directly between seller and buyer without the role of the clearing corporation in this aspect,” he added.
“If this issue precipitates, it could affect 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 run, I guess things should calm down,” said Deven Choksey, managing director of KRChoksey Shares and Securities Pvt. Ltd.
A person familiar with MCX’s thinking said there have been some cases among base metal traders where ITC claims have been canceled after a year or a year and a half. Although MCX has not become a party to any of these cases, the circular is an attempt to prevent such a possibility, the person said on condition of anonymity.
Although the revised circular will also apply to base metals and certain agro-processing contracts traded on MCX, the loudest protests are from the precious metals trade, given the high-value nature of their transactions.
The publicly traded metals and energy exchange MCX had a 99.14% market share in commodity derivatives in September, followed by agri derivatives exchange NCDEX (0.82%) and NSE (0.03%), according to latest regulatory data. Total commodity derivatives turnover in September stood at ₹24.53 trillion, of which MCX was responsible ₹24.32 trillion.
Since inception in 2003, MCX has seen delivery volumes of 136 tonnes in gold and 4,672 tonnes in silver through June 2023. MCX gold contract price includes import tax of 15% on the metal, but excludes the 3% GST on gold.
In the September quarter, MCX posted a net loss of ₹19 crores on income of ₹165 crores, against a profit of ₹63.2 crore on net sales of ₹127.4 crore a year earlier. The loss was attributed to an increase in software support costs from its former vendor 63 Moons of ₹134.5 crore against fair ₹21.8 crore in the year-ago quarter
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