ICICI Lombard Faces ₹2734.45 Crore GST Demand and Penalty Over Salvage and ITC Claim: ICICI Lombard General Insurance Company Limited has been issued an order confirming a tax demand of ₹2,734.45 crore under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, along with applicable interest under Section 50 and a penalty of ₹2,734.45 crore under Section 74 read with Section 122. The tax liability pertains to the period July 2017 to March 2022 and covers multiple states.
Key Issues in the Tax Order …….ICICI Lombard Faces ₹2734.45 Crore GST Demand and Penalty
The Additional Commissioner of CGST & Central Excise, Palghar Commissionerate, has passed this order concerning two major tax compliance issues affecting the entire insurance industry:
- GST Applicability on Salvage Value
- The order holds that when ICICI Lombard deducts the value of scrap/salvage/wreck from the total motor vehicle claim payable, it constitutes a supply under Section 7 of the CGST Act.
- As a result, the company is liable to pay GST on the salvage amount recovered from claim settlements.
- Incorrect Availment of Input Tax Credit (ITC)
- The company had availed and utilized Input Tax Credit (ITC) on tax invoices issued by repairers and motor garages in its name for claims settled under the reimbursement mode.
- The tax authorities found this to be an erroneous claim, as ITC cannot be availed when the repair services are received by policyholders and not by the insurer.
ICICI Lombard’s Response and Prior Deposit ……ICICI Lombard Faces ₹2734.45 Crore GST Demand and Penalty
- The company had earlier deposited ₹1,041.32 crore under protest, without admitting any liability.
- This amount was already reflected in the financial statements for the fiscal year ending March 31, 2024.
- The recent tax order has now appropriated this amount towards the total tax demand.
Industry-Wide Impact and Legal Implications ……..ICICI Lombard Faces ₹2734.45 Crore GST Demand and Penalty
The dispute highlights a broader industry-wide issue concerning the taxation of salvage and ITC eligibility on motor insurance claims. Several insurers could potentially face similar tax liabilities based on this interpretation by the tax authorities.
Additionally, legal experts believe that this ruling may lead to:
- Policy revisions in how motor insurers handle salvage value deductions.
- Greater compliance scrutiny on ITC claims in the insurance sector.
- Possible litigation, as ICICI Lombard may challenge the order before appellate authorities.
Next Steps for ICICI Lombard ……….ICICI Lombard Faces ₹2734.45 Crore GST Demand and Penalty
The company is expected to contest the tax demand through the appellate process, citing industry practices and precedents. If the order is upheld, it could lead to significant financial and operational adjustments in the insurance sector.
This case will be closely watched, as its outcome could shape the GST treatment of insurance claims and set a precedent for other insurance companies in India. ….Advocate Dhanwanti Rai
About Advocate Dhanwanti Rai
Advocate Dhanwanti Rai, a distinguished legal professional in Delhi with 17+ years of experience, is renowned for her commitment to justice. Specializing in property, banking, matrimonial, and family law, she is the top choice for property and divorce matters. In corporate law, her keen understanding and successful handling of complex matters mark her as a stellar corporate lawyer. As an expert arbitrator and POSH trainer, Advocate Rai is sought after for her impartiality and commitment to safe workplaces. Beyond the courtroom, she also serves as a trusted counselor for marital issues and manages an efficient team facilitating seamless marriage registrations in Delhi NCR.