Reliance General Insurance gets GST SCN of Rs. 922 Crore

The Directorate General of GST Intelligence (DGGI) has issued multiple show cause notices to Reliance General Insurance Company (RGIC), a subsidiary of Reliance Capital Ltd, totaling Rs 922.58 crore.

According to sources, the company has received four notices from the DGGI, each demanding GST of Rs. 478.84 crore, Rs. 359.70 crore, Rs. 78.66 crore, and Rs. 5.38 crore on revenue generated by services such as re-insurance and co-insurance.

The RGIC auditors will have to include this sum as a contingent liability in its quarterly results ending September 30, according to a tax expert.

Reliance Capital’s crown jewel, RGIC, is undergoing a debt resolution process through NCLT. RGIC accounts for nearly 70% of Reliance Capital’s total value.

As per sources, RGIC received a show cause notice from the DGGI on September 28 in the amount of Rs 478.84 crore regarding the applicability of GST on re-insurance commission booked on the re-insurance services ceded to various Indian and Foreign Reinsurance companies.

In accordance to the GST Authority, re-insurance commission is part of the revenue recorded by the company in its books of accounts and thus requires GST payment.

Similarly, the company received another show cause notice for Rs. 359.70 crore on September 28 in the matter of the applicability of GST on the co-insurance premium received as a follower in the co-insurance transactions, they said.

The company claims that because the lead insurer has already discharged its GST liability on the entire premium, there is no need for the company to pay GST on Follower Premium realised.

However, the GST department believes that, regardless of any co-insurance arrangement, 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 option in a co-insurance transaction to spread their risk across multiple insurers by allocating risk share to multiple insurers.

The company that bears the lion’s share of the risk cover is known as the lead insurer, while the other insurers who share the risk are known as participating co-insurers or followers.

The sources stated that the DGGI initiated an investigation into the matter of availing input tax credit (ITC) without underlying services for marketing expenses in the third show cause notice, totaling Rs 78.66 crore, from July 1, 2017 to March 31, 2022.

In this case, the company has deposited the ITC amount of Rs 10.13 crore under protest.

The company received its fourth show cause notice from the DGGI for failing to pay GST on the import of reinsurance services from foreign reinsurers in respect of the exempted crop insurance scheme from July 2017 to January 2018.

In addition to that, GST Authority has issued a tax notice in the amount of Rs 5.38 crore in this matter.