Chennai Zonal Unit of the Directorate General of Central Excise Intelligence, Ministry of Finance has found that 16 non-life insurance companies have violated Cenvat Credit norms by wrongly availing Cenvat Credit on the bogus invoices of car dealers. The estimated wrongful availing of Cenvat Credit is to the tune of Rs.1,200-2,500 crore.
“The Chennai Zonal Unit of the Directorate General of Central Excise Intelligence, Ministry of Finance has been conducting investigation under 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,” said a press release issued by the Central Excise department.
In this scheme (Cenvat Credit) the manufacturers or the output service providers can set off taxes paid on the inputs or the input services that are used while manufacturing products or providing the output service.
Central Excise has found that these insurance companies have paid out hefty commission to car manufacturers and dealers who are not authorized agents to distribute their motor insurance policies. Such commissions pay out to car companies (2-3%) and dealers (15%-45%) ranges between 2%-45%.
IRDAI regulations do not allow any person other than insurance agents and brokers to sell insurance policies. Also, the maximum commission for selling motor insurance policies is capped at 10%.
To circumvent these regulations, the insurance companies had asked car dealers to raise bogus invoices towards advertisement and marketing support, availing computer and printer facility and arranging customer awareness programs. During an investigation, Central Excise department found that such services were never provided by the car dealers.
“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 Central Excise Intelligence Department has not disclosed the names of these insurance companies in the press release. Currently, there are 21 non-life insurance including four public sector companies who deal in motor insurance business.