The government is actively considering a proposal to allow commodity exchange accredited warehouses to issue integrated GST to allow corporate hedgers and traders to take delivery on the exchange platform to benefit from set-off.
Currently, these warehouses issue bills with a component of state GST and traders with manufacturing centres in different states find it difficult to set it off. The entire process pushes up the cost of hedging and discourages corporates from looking for alternate means to hedge their risk.
Narinder Wadhwa, National President of the Commodity Participants Association of India said repeated representations have been made to the government over the GST issue, and they haveacknowledged it as a genuine concern. Still, there has been a procedural delay in finding a solution.
“We are hopeful that the government will address this concern to boost hedging on domestic exchange platform,” he said.
The GST set-off has gained prominence as the market regulator SEBI has made delivery mandatory on the expiry of all commodity derivative contracts, except for the energy basket contracts, which are cash settled.
The government levies 18 per cent GST on brokerage and transaction charges for commodity futures and options. Of this, the central and state governments get an equal share of 9 per cent each.
The integrated GST issued against the 9 per cent of central government share can be set off across the country while for setting off state GST the buyers have to generate some business activity in the state where the commodity delivery has been taken.
To circumvent the problem, a few corporates set up a subsidiary in the state where the warehouses operate and registered for a separate GST number. Even then, this subsidiary must have some business activity that generates GST liability in the state to offset the accumulated credit.
Despite bearish trend sentiment in the metal segment, delivery of copper and zinc on MCX increased 70 per cent and 53 per cent last fiscal to 21 million tonnes and 18 mt against 12 mt and 12 mt. However, that of aluminium and lead was down at 37 mt (38 mt) and 8 mt (15 mt) on MCX. Similarly, hedgers on NCDEX also faced issues while taking delivery of agriculture commodities from accredited warehouses.
Given the alleged delay in transferring GST funds from centre to state governments, Subhash Gupta, a metal trader, said it is unlikely that the states will agree to convert 9 per cent of state GST to integrated GST. They have to work out an innovative solution to this issue, he said.