In a sign of mounting trouble for bankrupt Reliance Capital, the Director General GST Intelligence (DGGI) has issued show cause notices to Reliance General Insurance Company (RGIC), demanding a whopping ₹922.58 crore in taxes. It's a profit-making subsidiary of Reliance Capital, which constitutes nearly 70% of the company's total value.
The parent firm is currently undergoing debt resolution under the National Company Law Tribunal process. The insolvency mechanism was initiated in November 2021 after the firm defaulted on loans amounting to ₹22,000 crore.
Supreme Court Battle Over Acquisition
Although the Hinduja group won the acquisition bid, the matter landed at the Supreme Court after the Torrent group, the winner of the first round, challenged the second auction conducted by Reliance Capital's lenders.
The winning bidder is now awaiting for the apex court's nod for further business pursuit. However, the new tax demand could impact the company's valuation. The Hinduja group had made an all-cash offer of ₹9,800 crore for the company.
Re-insurance Commission Tax Demand
According to senior tax officials, RGIC had been served multiple SCNs demanding GST payments on September 28. The first notice seeks ₹478.84 crore tax with regard to the application of GST on re-insurance commission associated with re-insurance services ceded to various Indian and foreign re-insurance companies.
Similarly, the second tax demand is for ₹359.70 crore and it pertains to the applicability of GST on co-insurance premiums received as a follower in co-insurance transactions.
Input Tax Credit (ITC) Issue
The third SCN for Rs78.66 crore tax demand was issued after the DGGI found that input tax credit (ITC) were availed without underlying services related to marketing expenses from July 1 2017, to March 31, 2022. The company had deposited, under protest, Rs10.13 crore for the ITC demand.
The fourth notice for ₹5.38 crore relates to non-payment of GST for revenue generated for re-insurance services from foreign re-insurers in connection with an exempted crop insurance scheme dating back to the period of July 2017 to January 2018.
