The DGGI issues Rs 922-cr show cause notice to Reliance General Insurance

9 Oct 2023 , 09:33 AM

On Sunday, the Directorate General of GST Intelligence issued three show cause letters totaling Rs 922.58 crore to Reliance General Insurance Company (RGIC), a subsidiary of Reliance Capital Ltd, according to PTI.

The notices cover the application of GST to co-insurance premiums and reinsurance commissions, as well as the use of input tax credits and the failure to pay GST on the import of reinsurance services.

The company has reportedly received four letters from the DGGI requesting GST payments of Rs 478.84 crore, Rs 359.70 crore, Rs 78.66 crore, and Rs 5.38 crore, respectively.

According to a tax expert cited by PTI, the RGIC auditors will need to account for this sum as a contingent liability in its quarterly results ending September 30.

The jewel in the crown of Reliance Capital, which is going through a debt settlement procedure through NCLT, is RGIC. Nearly 70% of Reliance Capital’s total worth is made up by RGIC.

On September 28, the DGGI issued RGIC a show cause notice for Rs 478.84 crore on the application of GST to reinsurance commission booked on services ceded to various Indian and foreign reinsurance companies, according to the sources.

According to the GST Authority, as reinsurance commission is included in the company’s revenue reported in its books of accounts, GST is due on that amount.

They added that the company also received a second show-cause notice on September 28 regarding the application of GST on the co-insurance premium it received as a follower in co-insurance transactions, totaling Rs 359.70 crore.

According to the company, the lead insurer has already satisfied its GST obligation on the total premium, hence the company is not required to pay GST on the realization of Follower Premium.

Regardless of any co-insurance agreements, the GST department is of the opinion that there is no provision in the GST Act that allows one registered person to collect and disburse tax on behalf of another.

The insured has the opportunity to divide their risk among several insurers in a co-insurance transaction by allocating risk share to several insurers. While the other insurers sharing the risk are referred to as the participating co-insurers or followers, the firm bearing the highest portion of risk cover is known as the lead insurer.

The company has deposited the ITC sum of Rs. 10.13 crore in this case while objecting.

The fourth demand for justification that the company has received from the DGGI relates to the import of reinsurance services from foreign reinsurers in relation to an exempted crop insurance plan between July 2017 and January 2018.

In this case, the GST Authority has issued a tax notice for Rs 5.38 crore, they continued.

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