GST Authority Issues Four Show Cause Notices Amounting To Rs 922 Crore To Reliance General Insurance

The DGGI sent four notices to the company demanding GST on the revenue generated from the company’s services like re-insurance and co-insurance.

The Directorate General of GST Intelligence (DGGI) has issued multiple show-cause notices worth Rs 922.58 crore to Reliance General Insurance Company (RGIC). The DGGI sent four notices to the company demanding GST worth Rs 478.84 crore, Rs 359.70 crore, Rs 78.66 crore, and Rs 5.38 crore respectively, on the revenue generated from the company’s services like re-insurance and co-insurance, news agency PTI reported citing sources. 

The report quoted a tax expert and noted that the RGIC auditors will now be required to provide for this amount in the company’s quarterly results ending September 30, as a contingent liability. RGIC is a subsidiary of Reliance Capital, which is going through a debt resolution process through the NCLT. RGIC makes up nearly 70 per cent of the total value of Reliance Capital. Sources further revealed that the company received a show cause notice worth Rs 478.84 crore from the DGGI on September 28, regarding the applicability of GST on re-insurance commission booked on it’s re-insurance services provided to several Indian and Foreign Reinsurance companies. 

The GST authority’s argument is that the re-insurance commission becomes a part of the revenue the company records in it’s books of accounts and therefore, it needs to pay GST on the amount. Another show cause notice worth Rs 359.70 crore was received by the company with regards to the applicability of GST on the co-insurance premium received as a follower in the co-insurance transactions. 

The company, on the other hand, has argued that the lead insurer already paid the GST liability on the entire premium, therefore, there should be no need for the company to pay further GST on the realisation of the Follower Premium. However, the GST body believes that the GST Act has no such provision that allows one registered entity to collect and disburse tax on behalf of another, irrespective of any co-insurance arrangement. 

Notably, in a co-insurance transaction, the insured has the choice to broaden their risk amongst more than one insurer by distributing risk share to multiple insurers. The company owning the largest risk cover share is known as the lead insurer, while other insurers sharing the risk are called participating co-insurers or followers.

In the third notice from the DGGI, amounting to Rs 78.66 crore, the body began an investigation into the subject of getting input tax credit (ITC) without underlying services with regard to marketing expenses, during the July 1, 2017, to March 31, 2022 period. In response, the company, under protest, deposited the ITC amount of Rs 10.13 crore, the report added. 

The fourth show-cause notice, amounting to Rs 5.38 crore, has been issued to the company in the matter of non-payment of GST under reverse charge basis on the import of reinsurance services from foreign insurers with respect to exempted crop insurance scheme, from July 2017 to January 2018 period.