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DGCEI detects Rs 2500 Crore CENVAT Credit fraud by insurance companies; Summons issued against 16 Cos

By TIOL News Service

CHENNAI, AUG 10, 2015: THE Directorate General of Central Excise Intelligence, CBEC, has issued summons against 16 Insurance Companies engaged in providing motor-vehicle insurance policies, for wrongly availing Cenvat Credit on the bogus invoices of the car dealers.

During the course of investigation, it has been noticed that the car manufacturers enter into agreement with the Insurance Companies for appointing them as Preferred Car Insurance Companies (PICs) and instruct their car dealers to sell their insurance policies to PICs only. Such PICs pay commission on the value of the insurance policies to the car companies (in the range of 2-3%) and the car dealers (in the range of 15-45%).

The IRDA regulations do not allow any person other than insurance agents and insurance brokers approved by IRDA, to sell vehicle insurance policies. Further the maximum brokerage/commission payable for selling insurance policies is also capped at 10% of the premium. To circumvent these regulations, the Insurance Companies ask the car dealers to raise invoices to show that the car dealers have provided the Insurance Companies services such as advertisement, renting of computers/ printers, training, arranging customer awareness program etc.

As these services were never provided by the car dealers, their invoices are not permissible documents under the CENVAT Credit Rules, 2004 and the Service Tax Rules, 1994 for availing Cenvat credit by the Insurance Companies. These facts have been confirmed by the employees of the Insurance Companies and the car dealers in their voluntary statements.

The estimated incorrect Cenvat Credit involved in this case is Rs. 1200-2500 crore.


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: CENVAT is revenue neutral Question is allowability of Expenditure

The Modus Operandii of Insurance companies are Seriously questionable for the purpose of allowability of expenditure under Income Tax law

However the car dealers have since already paid the taxes hence under Indirect tax law Insurance Companies may get releif from Courts on the ground of Revenue Neutrality

Posted by SAMEER SINGH
 

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