The Directorate General of GST Intelligence (DGGI) has increased the scope of its inquiry into insurance businesses over improper input tax credit claims. The Mumbai, Ghaziabad, and Bengaluru offices of DGGI have sent show-cause notices to various insurance intermediaries, including HDFC Bank, Go Digit Insurance, and Policy Bazaar. Sources have revealed that over 120 insurance intermediaries and aggregators across India are under scrutiny.
Issuance of Fake Invoices
The DGGI’s show cause notices have alleged that the insurance intermediaries, including HDFC Bank, Go Digit Insurance, and Policy Bazaar, issued fraudulent invoices to several insurance companies without providing any services. This punishable offence can lead to prosecution under the GST law.
Over the last 15 days, officials have sent summons and notices to these intermediaries. However, investigations have revealed that the insurance companies availed input tax credits (ITC) based on these fake invoices. They did this without an underlying supply of goods and services. Rule 16 of the CGST Act 2017 mandates that a buyer must have an invoice on which GST has been paid. They also must have received the goods or services for availing of the input tax credit.
As per the investigation, these intermediaries formed an arrangement to pass on ineligible Input Tax Credits through marketing services. Thus, raising fraudulent invoices by following a systematic modus in connivance with each other. The companies involved in such activities will be liable to a 100% penalty, as stated by an official. The investigators initiated the investigation in 2022 and discovered evasion amounting to Rs 2,250 crore. We are focusing on invoices that we raised between 2018 and March 2022.
Recovery of Tax and Notices to Insurance Companies
Furthermore, the tax authorities have also sent notices and summons to insurance companies and have recovered tax in some cases. According to officials, these companies have collected a pre-deposit of Rs 700 crore. The DGGI has already issued summons and notices to 12 insurance companies; three investigations are in the final stage. Consequently, they anticipate finalizing the report soon.
The ongoing investigations
In addition to the ongoing investigation by DGGI, the income tax department is conducting a separate probe into the matter to ensure that the investigation is thorough and complete. The department is reportedly examining the tax returns of the insurance companies to investigate the wrongful claim of expenses towards the payment of commission to these intermediaries.
The DGGI has taken a serious view of the issue and is investigating it rigorously. The issuance of fake invoices has been a persistent problem in India. The authorities have been taking steps to curb it. For instance, the DGGI has been at the forefront of the fight against fake invoices. It has also been taking proactive measures to detect and punish those involved in this illegal activity.
According to sources, the income tax department is examining the tax returns of the insurance companies. The purpose is to investigate the wrongful expense claims towards paying commissions to these intermediaries. The involvement of the income tax department in the matter indicates that they take this issue very seriously.
Tax Evasion Speculations by DGGI
According to the investigation conducted by DGGI, the insurance companies under scrutiny availed input tax credit (ITC) without any underlying supply of goods and services. Instead, it was availed based on fraudulent invoices provided by insurance intermediaries. As a result, the evasion of tax amounts to Rs 2,250 crore. The companies will be held liable to pay a 100% penalty. However, recovering Rs 700 crore as a pre-deposit from these companies marks a significant step towards recovering the lost revenue.
The investigation is ongoing, and the DGGI has sent summons and notices to several insurance intermediaries. Also, the investigation is in the final stages, and the report is expected to be finalized soon. The DGGI has been vigilant in its efforts to curb the issuance of fake invoices. This investigation is a testament to its commitment to this goal.