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Old 19th August 2015, 01:14   #1
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Default Government uncovers huge service tax fraud in car insurance

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Rs 3,000-cr ‘fraud’ : Insurance companies to approach Arun Jaitley over tax raids

The government claims to have uncovered a huge service tax fraud in motor vehicle insurance, with alleged tax evasion to the tune of almost Rs 3,000 crore. In the largest such tax-related search targeting an industry at one go, officials have seized documents from all insurance companies that sell motor vehicle insurance. The survey operations were conducted at the head offices of all general insurance companies in Chennai, Pune and Mumbai in the past few weeks. The companies, in turn, have decided to approach Finance Minister Arun Jaitley to protest against the move. Insurance companies claim the seizures are unjustified and that officers of the Directorate General of Central Excise Intelligence (DGCEI) treated employees “inhumanly” and “harassed them” during search operations.

The issue is as follows : When a customer walks into a car showroom, he usually has no particular preference regarding the company to insure his car with. The dealer often guides the customer. Insurance companies pay dealers for this guidance in the form of commission. Insurers also pay dealers the cost of advertisements for their showrooms as well as other such incentives.

These incentives are taxable items under service tax and the insurance paperwork is maintained by motor vehicle dealers.

While insurance companies claim tax credit for the service tax paid to automobile dealers, DGCEI officials allege that the dealers have not provided most of the services the insurance companies claimed credit for to reduce their service tax dues.
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Last edited by GTO : 19th August 2015 at 13:04. Reason: Added quoted text in quotes, thanks
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Old 19th August 2015, 01:16   #2
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Default re: Government uncovers huge service tax fraud in car insurance

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However, auto industry sources say if the Tamil Nadu investigation into the Rs 1200-2500 crore Cenvat fraud is expanded to cover the entire country, the end customer buying a new car could well be hit as discounts will come down sharply. Insurance commission from the agent/insurance company to the dealer is partly used to fund the basket of discounts that the end customer now enjoys.

"When vehicle makers tie up with insurance companies, these are all-India arrangements and not geography specific," said a top auto financier. "So if the investigation goes all-India, there should be a hit on discounts for the end customer because the insurance commission is used to offer a benefits package to the customer." Dealer sources say if car dealerships are forced to stick to the IRDA cutoff of 10% commission instead of the 30-35% currently the norm, the discount hit could range from Rs 7000-10,000 for a compact car not to mention the discomfort of handling insurance formalities personally.
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Last edited by GTO : 19th August 2015 at 13:06. Reason: Keeping the fair usage policy in mind, it's best to share an excerpt + link to full article. Thanks
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