16 insurers under DGGI lens for `5k-cr fraud

Mumbai: The Mumbai Zonal Unit of Directorate General of GST Intelligence (DGGI) has initiated investigations against 16 insurance companies on the issue of availing of ineligible input tax credit (ITC).

The DGGI has been investigating these companies for allegedly floating shell companies to pay high commissions and accounting for the payments under other heads to reduce tax outgo. During its probe, the Mumbai unit of DGGI conducted inspections on some companies and also

summoned their executives.

A similar investigation has also been initiated by the enforcement agency against 27 non-life insurers too. Total amount of fraud involved into the episode is said to be at around Rs5,000 crore, a media report says.

In case of non-life insurers, the insurers allegedly paid money to the intermediary agents under so called advertisements. Hence, they had opened shell companies for the same. The money was used by the insurers to pay commission, higher than the IRDAI approved rates in form of commissions to their agents. Interestingly, these intermediary agents never do promotional jobs and rather the amount has been paid to them under Reverse Charge Mechanism (RCM), DGGI sources told Bizz Buzz.

During the course of investigations, it has come to light that these insurance companies have availed of input tax credit on the basis of invoices issued by several intermediaries for providing services of advertising, marketing and brand activation, whereas no such services had actually been provided. Thus, 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 Rs824 crore has been availed, out of which an amount of Rs217 crore has been paid voluntarily by these 16 insurance companies so far. In case of general insurers, the amount involved is estimated to be up to to Rs4,000 crore, reveals a media report.

Several non-banking financial companies (NBFCs) engaged in micro financing businesses are acting as corporate agents of the insurance companies and are cross selling their single premium credit liked insurance policies in the course of their lending business. As per IRDA regulations, only nominal commission is permitted to corporate agents. In order to circumvent these regulations, the insurance companies have resorted to obtaining invoices from

intermediaries, in order to transfer commission (over and above the permissible limit) to NBFCs, for supply of services of advertising and web marketing, whereas there has been no underlying supply of services. In turn, these intermediaries have received invoices from NBFCs for such supplies. Further investigation is in progress.