COMMODITIES TRANSACTIONS TAX

[Mr. M. GOVINDARAJAN]

The Commodities Transactions Tax (‘CTT’ for short) was proposed in 2008 budget but abolished based on the Prime Minister’s Economic Advisory Council recommendations in the Budget 2009. The present budget has ushered in CTT regime on non agricultural commodities such as gold, silver and metals. Non agricultural commodities made up for about 88% of the total trade of Rs.181.26 lakh crore in 2011-12 and for this current financial year up to January 2013 it amounts to 87.5% of the total trade of Rs.144 lakh crores.

 Chapter VII of the Finance Bill, 2013 deals with the Commodities Transactions Tax.   This Chapter extends to whole of India and it shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.   The tax is applicable to taxable commodities transactions entered into on or after the commencement of this Chapter.

The ‘taxable commodities transactions’ is defined under Clause 106 (7) of Finance Bill, 2013 as a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognized associations.   The terms ‘commodity derivatives’ is defined under Clause 106(5) of the Finance Bill, 2013 as-

• a contract for delivery of goods which is not a ready delivery contract; or
• a contract for differences which derives its value from prices or indices of prices––

              of such underlying goods; or

              of related services and rights, such as warehousing and freight; or

              with reference to weather and similar events and activities,having a bearing on the commodity sector.

The features of this Chapter are as follows:

• CTT in respect of every taxable commodities transaction, being the sale of commodity derivative, is at the rate of 0.01% on the value of such transaction and such tax shall be  payable by the seller;
• The value of taxable commodities transaction shall be price at which the commodity derivate is traded;
• Every recognized association (assessee) shall collect the CTT from the sellers who enter into the transaction;
• The tax collected during any calendar month shall be paid to the credit of Central Government by the 7^th day of the following the said calendar month;
• Any assessee who fails to recover the tax shall, notwithstanding such failure, be liable to pay tax to the credit of Central Government within the day stipulated;
• Every assessee shall, within the prescribed time after the end of each financial year, file a return in such form, verified in such manner and setting forth such particulars as may be prescribed in respect of all taxable commodities transactions entered into during the financial year;
• If the return is not filed within the prescribed time, the Assessing Officer may issue a notice to such assessee and serve it upon him, requiring him to furnish the return within such time as may prescribed;
• The assessee can file revised return before the assessment is made;
• The Assessing Officer may require the assessee to submit accounts or documents or other evidence;
• The Assessing Officer after considering such accounts, documents or other evidence, if any and after taking into account any other relevant material which he has gathered, shall, by order in writing, assess the value of taxable commodities transactions during the relevant financial year and determine the tax payable or the refund due on the basis of such assessment;
• No assessment shall be made after the expiry of two years from the end of relevant financial year;
• Every assessee in case any amount is refunded to it on assessment shall, within such time, as may be prescribed, refund such amount to the seller from whom such amount was collected;
• With a view to rectifying any mistake apparent from the record, the Assessing Officer may amend any order passed by him, within one year from the end of the financial year in which the order sought to be amended was passed;
• Wherein any matter has been considered and decided in any proceeding by way of appeal, the Assessing Officer may amend the order ;
• Subject to the other provisions of this section, the Assessing Officer may make an amendment either suo motu or on any mistake brought to his notice by the assessee;
• An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made unless the Assessing Officer has given notice to the assessee of his intention so to do and has given the assessee a reasonable opportunity of being heard;
• An order of amendment shall be made by the Assessing Officer in writing;
• Where any such amendment has the effect of reducing the assessment, the Assessing Officer shall make the refund, which may be due to such assessee;
• Where any such amendment has the effect of enhancing the assessment or reducing the refund already made, the Assessing Officer shall make an order specifying the sum payable by the assessee;
• Every assessee, who fails to credit the tax or any part thereof within the period, shall pay simple interest at the rate of 1% of such tax for every month or part of a month by which such crediting of the tax or any part thereof is delayed;
• An assessee who fails to collect the whole or any part of the tax shall be liable to pay interest and penalty, a sum equal to the amount of tax, he failed to collect;
• An assessee who collected the tax but fails to pay the same, shall pay interest and penalty of Rs.1000/- for every day during which the failure continues and the penalty shall not exceed the amount of tax he failed to pay;
• If an assessee fails to furnish the return within the time prescribed, he shall be liable to pay a penalty a sum of Rs.100/- for each day during which the failure continues;
• If the Assessing Officer, in the course of any proceedings, is satisfied that the assessee has failed to comply with a notice he may direct that such assessee shall pay, by way of penalty, in addition to any tax and interest, a sum of Rs.10,000/- for each such failure;
• No penalty shall be imposable for any failure if the assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure;
• No order imposing penalty shall be made unless the assessee has been given a reasonable opportunity of being heard;
• The following provisions of the Income Tax Act, 1961 shall apply, so far as may be, in relation to commodities transaction tax, as they apply in relation to income tax:

• Section 120 – Jurisdiction of Income Tax Authorities;
• Section 131 – Power regarding discovery, production of evidence etc.,;
• Section 133A – Power of Survey;
• Section 156 – Notice of demand;
• Section 178 – Company in liquidation;
• Section 220 – When tax payable and when assessee deemed in default;
• Section 221 – Penalty payable when tax in default;
• Section 222 – Certificate to Tax Recovery Officer;
• Section 223 – Tax Recovery Officer by whom recovery is to be effected;
• Section 224 – Validity of Certificate and cancellation of amendment thereof;
• Section 225 – Stay or proceedings in pursuance of certificate and cancellation of amendment thereof;
• Section 226 – other modes of recovery;
• Section 227 – Recovery through State Government;
• Section 229 – Recovery of penalty, fine, interest and other sum;
• Section 232 – Recovery by suit and other law not affected;
• Section 260A – Appeal to High Court;
• Section 261 – Appeal to Supreme Court;
• Section 262 – Hearing before Supreme Court;
• Section 265 – Tax to be paid notwithstanding reference, etc.,
• Section 266 – Execution for Costs awarded by Supreme Court;
• Section 267 – Amendment of assessment on appeal;
• Section 268 – Exclusion of time taken for copy;
• Section 269 – Definition of High Court;
• Section 278B – Offences by companies;
• Section 282 – Service of notice generally;
• Section 288 – Appearance by authorized representative;
• Section 289 – Receipt to be given;
• Section 290 – Indemnity;
• Section 291 – Power to tender immunity from prosecution;
• Section 292 – Cognizance of offence;’
• Section 293 – Bar of suits in civil courts

• If an assessee is aggrieved by any assessment order may file an appeal to Commissioner of Income Tax (Appeals) within 30 days from the date of receipt of the order in such form and verified in such manner as may be prescribed along with a fee of Rs.1000/-
• If an assessee is aggrieved by an order of Commissioner of Income Tax (Appeals) he may file appeal to the Appellate Tribunal. The Commissioner of Income Tax may, if he objects to any order passed by the Commissioner of Income Tax (Appeals) direct the Assessing Officer to appeal to the Appellate Tribunal. The appeal shall be filed within 60 days from the date on which the order is received.   The appeal shall be in such form and verified in such manner as may be prescribed with a fee of Rs.1000/-
• If a person makes a false statement in any verification or any rule or delivers an account or statement, which is false, and which he either knows or believes to be false or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine. This is non cognizable offence.
• No prosecution shall be instituted against any person for any offence except with the previous sanction of the Chief Commissioner of the Income tax.

The industry felt that CTT would increase transaction cost which will drive the trade towards dabba trading or international market.   It would discourage participation in the commodities derivatives. It further will dissuade hedgers from participating in Indian commodities exchange.   On the other hand it was felt that the proposal to exempt CTT on agriculture commodity futures would further strengthen the agricultural commodity derivatives market in India. It is expected to yield a sum to the exchequer from Rs.1000 crores to Rs. 1500 crores while it can do much harm to the nascent segment of Indian Financial market.   It is likely to impose volumes on the exchange.   The budget has allowed set off CTT paid against business income by those whose main business is trading commodities.