Insurance companies availing fraudulent input tax credits using fake invoices are under investigation by the Directorate General of GST Intelligence (DGCI).
Sixteen insurance claimed ineligible input tax credits worth Rs 824 crore as identified by the GST department. Under the GST law, businesses can offset the tax paid on inputs against the levy on final goods and services they provide.
DGCI initiated an investigation after information against ICICI Prudential Insurance surfaced and voluntarily paid back Rs 100 crore of the ineligible claims. Insurance companies availed input tax credit on bogus invoices issued by several intermediaries for providing services of advertising, marketing, brand activation etc., whereas no such services had been provided. The modus operandi involved non-bank lenders acting as corporate agents of insurance companies and cross-selling single premium credit linked insurance policies in the course of their lending business.
“In the absence of any underlying supply, the input tax credit availed by the said insurance companies is not permissible under the GST law. Investigations have revealed that input tax credit of Rs. 824 Crore has been availed, out of which an amount of Rs. 217 Crore has been paid voluntarily by these sixteen insurance companies so far,” said the Ministry of Finance Statement on the GST investigations against private insurance companies.
Several non-banking financial companies (NBFCs) engaged in microfinancing businesses acting as corporate agents of the insurance companies were cross-selling their single premium credit liked insurance policies in the course of their lending business.
IRDA regulations permit only nominal commission to corporate agents. “In order to circumvent these regulations, the insurance companies have resorted to obtaining invoices from intermediaries and transfer commissions over and above the permissible limit,” informed a senior GST official.
Insurance companies paid high commissions to NBFCs in the guise of supply of services of advertising, web marketing, etc whereas no underlying supply of services was made. In turn, these intermediaries have received invoices from NBFCs for such supplies.