India: Competition Commission Of India Publishes The Draft Determination Of Turnover Or Income Regulations

1. INTRODUCTION

1.1. The Competition Commission of India ("CCI"), on December 22, 2023, published the draft CCI (Determination of Turnover or Income) Regulations, 2023¹ ("Draft Regulations"), inviting public comments till January 12, 2024.²

1.2. Notably, the Competition (Amendment) Act, 2023³ ("Amendment Act")⁴ , introduced important changes in relation to penalty regime, such as publication of penalty guidelines, and imposition of penalty on: (i) enterprises based on their global turnover;⁵ and (ii) individuals based on their income. As such, the Draft Regulations are an important pre-cursor to the penalty guidelines and will provide for the mechanism for the determination of turnover or income for the purposes of Section 27(b)⁶ and Section 48⁷ of the Competition Act, 2002 ("Act"). The key features of the Draft Regulation are set out in detail below:

2. KEY FEATURES OF THE DRAFT REGULATION

2.1. Determination of turnover/ income for enterprise(s)

In relation to enterprises, the Draft Regulation has defined turnover/ income in an expansive manner and includes "the total value of sales or revenue or receipts, by whatever name called, and other operating income", as reflected in the audited financial statements of the concerned enterprise.⁸ However, the Draft Regulation has clarified that the turnover or income shall exclude: (i) indirect taxes; (ii) trade discounts; and (iii) intragroup sales.

The Draft Regulation has further clarified that if the audited financial statements are not available, turnover shall be the amount: (i) as certified by the statutory auditor of the enterprise; and (ii) supported by an affidavit by a person authorised to sign financial statements of the enterprise. Moreover, in case the statutory auditor is not appointed by the enterprise, the turnover shall be the amount: (a) as certified by a Chartered Accountant; and (b) supported by an affidavit a person authorised to sign financial statements of the enterprise.

2.2. Determination of income for individual(s)

In relation to individuals, the Draft Regulation has elucidated that the income shall be the gross total income as per the Income Tax Returns ("ITR") as prescribed under the Income Tax Act, 1961. However, if the ITRs are not available/ tax returns are filed in multiple jurisdictions/ not filed at all, the income shall be computed as the total income: (i) as certified by a Chartered Accountant; and (ii) supported by an affidavit by the individual whose income is being determined. Further, if an individual is not mandated to file ITR, the income shall be the total income: (a) as certified by a Chartered Accountant; and (b) supported by an affidavit by the individual whose income is being determined.

3. QUICK VIEW

3.1. The Draft Regulation is a welcome development and a step in the right direction for ensuring a robust and comprehensive framework for determination of penalty. Further, by explicitly excluding indirect taxes, trade discounts and intra-group sales from the ambit of turnover/ income for enterprises, the Draft Regulations has brought parity regarding computation of turnover/ income for imposition of penalty under Section 27 of Act and under the merger control regime. ⁹

3.2. While the Draft Regulation has provided timely and much-needed clarification regarding the components of turnover/ income, the stakeholders await the detailed penalty guidelines to be issued by the CCI in due course that will provide clarity regarding the methodology for computing penalties. As such, it is hoped that the penalty guidelines will ensure that the penalties levied by the CCI are proportionate to the gravity of the infringement and will further increase certainty for the stakeholders on the computation of penalties.

Footnotes

1. The Draft CCI (Determination of Turnover or Income) Regulations, 2023, available at: https://www.cci.gov.in/images/stakeholderstopicsconsultations/en/draft-cci-determination-of-turnover-or-incomeregulations-20231703229437.pdf.

2. Comments on the Draft CCI (Determination of Turnover or Income) Regulations, 2023 can be submitted here: https://www.cci.gov.in/stakeholders-consultations/27

3. The Competition (Amendment) Act, 2023, available at: https://www.cci.gov.in/images/legalframeworkact/en/thecompetition-amendment-act-20231681363446.pdf

4. Our detailed analysis the Amendment Act can be availed at: https://induslaw.com/publications/pdf/alerts2023/infolexalert-competition-amendment-act.pdf.

5. By introducing the concept of 'global turnover' on penalty imposition, the Government effectively nullified the Supreme Court ruling in Excel Crop Care Limited v. Competition Commission of India & Anr, wherein the Supreme Court clarified that the CCI should impose the penalty only on the 'relevant turnover', i.e., an enterprise's turnover pertaining to products and services that have been affected by such a contravention and not on the total turnover. Civil Appeal No. 2480 of 2014, Excel Crop Care Limited v. Competition Commission of India & Anr., order dated May 08, 2017.

6. Section 27(b) of the Competition Act, 2002 empowers the CCI to impose penalty not more than ten percent of the average of the turnover for the last three preceding financial years upon the party engaged in anti-competitive activities. Available at: https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf

7. Section 48 of the Competition Act, 2002 empowers the CCI to impose penalty on individual persons that are in contravention of the provisions of the Act. Available at: https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act20021652103427.pdf

8. In case an enterprise is required to prepare a consolidated financial statement under Section 129 of the Companies Act, 2013 or under any law, turnover or income shall be derived based on such audited consolidated financial statements.

9. CCI FAQ (available at: http://164.100.58.95/node/2847) provides that for computation of turnover under Section 5 of the Act (i.e., the merger control regime: (a) only income derived from sale, supply or distribution of goods or on account of services rendered or both; and (b) goods and services exported from India, should be included, and (x) indirect taxes; and (y) intra-group sales, should be excluded.

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