Taxman sniffs Rs.2,500-cr wrong claims by auto insurers

Chennai, Aug 27: The industry watchdog must keep away from the controversy over alleged wrong claim of credit worth Rs.2,500 crore pertaining to central value added tax (Cenvat) by 16 non-life insurers on automobile cover and let the tax department complete the probe, a former regulatory official has said. As per K.K. Srinivasan, former member of the Insurance Regulatory and Development Authority of India, the issue pertaining to auto insurance, being probed by the Chennai Zonal Unit of the finance ministry's Directorate General of Central Excise Intelligence, has many dimensions. The directorate says non-life insurers claimed wrong Cenvat credit based on bogus invoices raised by car dealers who entered into pacts with manufacturers to appoint them as preferred insurance companies. But regulations, the officials said, only allow approved insurance agents and brokers to sell such policies. "If car dealers have not remitted to the excise department the service tax paid by insurers on the invoices raised by them, it is an offence for which dealers will, perhaps, be responsible -- and not the insurers who are the consumers," Srinivasan told IANS. "If the invoices are bogus as alleged, the Cenvat credit taken by insurers become inadmissible." Officials sought to explain the alleged modus operandi: Car makers enter into pacts with specific insurance companies. Their car dealers are told to sell policies of only the preferred insurers. This fetches a commission of 2-3 percent for manufacturers and 15-45 percent for the dealers. The tax officials alleged there were several other discrepancies as well.