CCI Proposes Manner of Determining Enterprise’s Turnover

The Competition Commission of India (CCI) has released the draft CCI (Determination of Turnover or Income) Regulations, 2023, providing the manner in which the turnover or income of enterprises/ individuals has to be determined for the purposes of imposition of penalty for violation of applicable provisions of the Competition Act, 2002. The Commission has sought public comments on the draft regulations by January 12, 2024.[1]

This computation is for the imposition of penalty under Sections 27(b) and 48 of the 2002 Act, which was amended in April of this year, vide Competition (Amendment) Act, 2023.

Imposition of Penalty

Upon inquiry into anti-competitive agreements or abuse of dominant position under Sections 3 or 4 of the 2002 Act, the Commission is empowered to pass an appropriate order. In case of violation of applicable provisions of the Act, the Commission may impose a penalty on the concerned enterprise or individual, not exceeding 10% of the average of the turnover or income for the last three preceding financial years. However, for a cartel, the Commission may impose upon each involved person included in the cartel, a penalty of up to 3 times of its profit for each year of the continuance of the violating agreement or 10% of its turnover or income, as the case may be, for each year of the continuance of such agreement, whichever is higher. The same is as per Section 27(b) of the amended Act.

In case a company is found to be in contravention of the applicable provisions of the Act, the Commission can impose a penalty on persons in charge of or responsible for the company for the conduct of its business at the time of contravention. However, the said penalty cannot exceed 10% of the average of the income for the last three preceding financial years. This is in accordance with Section 48(1).

Prior to the amendment, the 10% cap on penalty that could be imposed on individuals was not in place. Further, though it was specified that the penalty imposed on enterprises couldn’t exceed 10% of the average of the turnover, the manner in which such turnover could be determined was not laid down; Section 2(y) only stated that turnover included the value of the sale of goods or services.

The 2023 amendment, by way of an explanation, clarifies that for the purpose of Section 27(b), turnover would mean “global turnover derived from all the products and services by a person or an enterprise”. Since this is clarifying in nature, the provision could be held to apply retrospectively.

Draft CCI Regulations

Regulation 3 of the draft regulations specifies that the turnover or income of the enterprise under Section 27 of the 2002 Act would include the “total value of sales or revenue or receipts, by whatever name called, and other operating income, as per the audited financial statements maintained by such enterprise”. This amount will not include indirect taxes, trade discounts, and intra-group sales. If the audited financial statements are not available, the amount certified by the enterprise’s statutory authority as supported by an affidavit would be its turnover.

When it comes to individuals, the gross total income that reflects in the income tax returns (ITR) would qualify as income under Sections 27 and 48 of the Act. If the concerned person is not required to file ITR, ITRs are unavailable or are filed in multiple jurisdictions or not filed in any jurisdiction, the total income as certified by a Chartered Accountant and supported by an affidavit would be treated as income under said Sections.

Remarks

The power provided to CCI for determining penalty based on global turnover would culminate into hefty penalties being imposed on large multinational companies operating globally which are violating the provisions of the Act read with Rules and Regulations framed thereunder. The Regulation therefore may be an effective deterrent for such entities and encourage compliance with provisions of the Act. The Regulations also provide much-needed clarity and a specific manner in which turnover/ profit is to be determined for the purposes of imposition of penalty by the CCI.

References:

[1] The deadline has been extended to January 25, 2024, vide public notice dated January 16, 2024.

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Regulation 3 of the draft regulations specifies that the turnover or income of the enterprise under Section 27 of the 2002 Act would include the “total value of sales or revenue or receipts, by whatever name called, and other operating income, as per the audited financial statements maintained by such enterprise”. This amount will not include indirect taxes, trade discounts, and intra-group sales. If the audited financial statements are not available, the amount certified by the enterprise’s statutory authority as supported by an affidavit would be its turnover.

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