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16 insurance firms under FInMin scanner

The car firms were entering into pact with the insurance firms for appointing them as preferred car insurance companies and instructing their car dealers to sell their policies to these companies only.

By: ENS Economic Bureau | New Delhi |
August 11, 2015 1:59:10 am

A revenue intelligence agency has found that some 16 insurance companies engaged in motor-vehicle insurance have been wrongly availing of cenvat credit worth around Rs 2,500 crore by producing fake invoices.

The probe was conducted by the Chennai zonal unit of the Directorate General of Central Excise Intelligence 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.

“The estimated incorrect cenvat credit involved in this case is Rs 1,200-2,500 crore,” the finance ministry said in a statement. Detailing the modus operandi, the DGCEI said that the car manufacturers were entering into agreement with the insurance companies for appointing them as preferred car insurance companies (PICs) and instructing their car dealers to sell their insurance policies to these companies only.

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Such PICs were paying commission on the value of the insurance policies to the car companies in the range of 2-3 per cent while 15-45 per cent to the car dealers.

The Irda regulations do not allow any person other than insurance agents and insurance brokers approved by it to sell vehicle insurance policies and the maximum brokerage or commission payable for selling insurance policies is capped at 10 per cent of the premium.

“To circumvent these regulations, the insurance companies ask the car dealers to raise invoices to show that the car dealers have provided the services such as advertisement, renting of computers/ printers, training, arranging customer awareness program etc to insurance companies,” the release said.

As these services were never provided by the dealers, the invoices raised were not permissible documents under the CENVAT Credit Rules, 2004 and the service tax rules, 1994, for availing cenvat credit. The findings have been confirmed by the employees of the insurance companies and the car dealers in their voluntary statements.

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