Insurers are Being Targeted by the Tax Department in Place of Automobile Dealers

The zonal Chennai unit of the finance ministry’s Directorate General of Central Excise Intelligence had issued summons in August to general insurers for wrongful claims of Cenvat credit to the tune of INR 1, 200-2, 500 as per bogus invoices of automobile dealers.


The revenue department is now going after non life insurance companies for wrongfully getting Cenvat credit in place of automobile dealerships as targeting the former is easier by numbers according to an industry body official. Automobile dealers who did not remit service tax components of payments made for outsourced services have spurred investigations by the revenue department into Cenvat credit. 25 insurance companies have been targeted by the department which is easier according to the secretary general, General Insurance Council of India, R Chandrasekaran.


The council is representative of the interests of non life insurers in India. According to Chandrasekaran, the show cause notice issued to general insurers may result from documentation or procedural shortcomings. Insurance companies have already availed of services from auto dealers and paid for the same along with service tax on these services according to him. He also added how the companies would attend to these notices and reply to the department with proof and information as required. As per his opinion, auto dealers offer information of comprehensive insurance coverage as part of value added offerings to car buyers. Dealers receive payment for outsourced services which are for associated customer service tasks which would otherwise be executed by insurance companies themselves.


Total payments made to auto dealers covers business procurement commissions and outsourced service payments along with sales tax. According to the finance ministry, no person other than insurance brokers with IRDAI approval or agents can sell vehicle insurance schemes. Maximum commissions and brokerage payable for selling policies is fixed at 10% of the premium. To take care of these regulations, insurance companies insist on invoices from car dealers for showing that they have offered services like computer/printer renting, advertisements, customer awareness programmes, training and other activities according to the finance ministry. According to the ministry, as these services were never provided by car dealers, invoices are not allowed under the Cenvat credit scheme for insurers. This issue is being watched with interest by automobile industry bodies with a view towards determining the possible outcome.


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