Service Tax - DGCEI case on wrong CENVAT Credit on 'Bogus' invoices?
A Government of India Press Release says that the DGCEI has investigated under summons 16 Insurance Companies engaged in providing motor-vehicle insurance policies, for wrongly availing Cenvat Credit on the bogus invoices of the car dealers.
The interesting findings of the DGCEI in the case:
1. The car manufacturers enter into agreement with the Insurance Companies for appointing them as Preferred Car Insurance Companies (PICs) and instruct their car dealers to sell their insurance policies to PICs only. Such PICs pay commission on the value of the insurance policies to the car companies (in the range of 2-3%) and the car dealers (in the range of 15-45%).
2. The IRDA regulations do not allow any person other than insurance agents and insurance brokers approved by IRDA, to sell vehicle insurance policies. Further the maximum brokerage/commission payable for selling insurance policies is also capped at 10% 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 Insurance Companies services such as advertisement, renting of computers/ printers, training, arranging customer awareness program etc.
3. As these services were never provided by the car dealers, their invoices are not permissible documents under the CENVAT Credit Rules, 2004 and the Service Tax Rules, 1994 for availing Cenvat credit by the Insurance Companies.
4. These facts have been confirmed by the employees of the Insurance Companies and the car dealers in their voluntary statements.
If there is an offence under the IRDA regulations, is the DGCEI the proper authority to deal with that? The whole charge is that the car dealers should not have paid the Service Tax (on Services alleged to have not been provided) and so the insurance companies should not have taken CENVAT Credit. Now will the car dealers get refund of the Service Tax paid by them because no service was rendered by them?Can the Central Excise authorities at the recipient end decide about the taxability of the input services?
It is reported that the Insurance Companies have decided to approach the Finance Minister and some of them have alleged that while conducting the surveys, Service Tax officials "wrote the statements as they liked and forced officials of the companies to sign such statements".
This must be the reason that the Revenue Department went public with the investigation. The issue is not even at the Show Cause Notice stage and they have not recovered a rupee from the insurance companies, out of the alleged evasion of about 2500 crores.
Any way we may have to wait for another twenty years to see the final outcome of this case. Good luck lawyers - you need to pay Service Tax!