Goods and services tax (GST) authorities have issued notices to over 20 general insurance companies operating within Special Economic Zones (SEZs). These notices demand approximately ₹2,000 crore in unpaid GST for services provided to the employees of SEZ industrial units and their families.
Companies Receiving Notices
Among the companies that have received show-cause notices (SCNs) from the Directorate of GST Intelligence (DGGI) are HDFC Ergo General Insurance Co, Star Health & Allied Insurance, Cholamandalam MS General Insurance Co, New India Assurance Co, and United India Insurance Co. The SCNs pertain to Integrated GST (IGST) issues.
IGST Exemption and Misuse
Under Section 16 of the Integrated GST (IGST) Act, no tax is levied on exports and supplies to SEZs. This exemption applies to insurance services provided to SEZ units. However, the DGGI’s investigation revealed that insurers extended this exemption to group medical insurance for SEZ employees and their families. The probe found that services billed to SEZ units were also provided to employees and their families, leading to allegations of unpaid IGST.
Previous Investigations and Notices
This situation marks the second time the insurance sector has faced scrutiny from the DGGI. Previously, around 30 insurance firms received notices concerning alleged GST evasion related to commission payments to agents. These companies contested the notices, which alleged GST evasion exceeding ₹5,500 crore, before the appellate authority.
Responses and Legal Options
The companies were asked to address queries raised by the DGGI. However, their responses were deemed unsatisfactory, resulting in the issuance of SCNs. The SCNs indicate that the services provided by these companies are subject to an IGST of 18%. Spokespeople for Star Health and HDFC Ergo have not yet responded to inquiries, and other companies have not been reached for comment.
Regulatory Background
In 2015, the Insurance Regulatory and Development Authority of India issued guidelines permitting insurers to establish offices in SEZs. These offices, known as IFSC Insurance Offices, are authorized to conduct direct and reinsurance business provided they meet specific criteria. The rules were updated in 2019 to include insurance intermediaries operating in all SEZs.
Companies’ Arguments and Findings
In their explanations, the companies referenced a letter from the Ministry of Commerce and Industry outlining the authorized operations eligible for IGST exemption in SEZs. However, the investigation revealed that while the SEZ units of the insurers were authorized for general insurance services, group health insurance services did not qualify for the exemption.
