Show cause notice

Reliance General Insurance Company (RGIC), a subsidiary of Reliance Capital Ltd, has been served with multiple show cause notices, totaling a staggering Rs 922.58 crore, by the Directorate General of GST Intelligence (DGGI). 

This development, reported by PTI, centres on a range of GST-related issues, including the applicability of the tax on re-insurance commission and co-insurance premiums, as well as concerns about input tax credit (ITC) and non-payment of GST on the import of reinsurance services.

PTI sources indicate that RGIC received four separate notices from the DGGI, demanding sums of Rs 478.84 crore, Rs 359.7 crore, Rs 78.66 crore, and Rs 5.38 crore, respectively. These notices have substantial financial implications for the company.

The first notice, amounting to Rs 478.84 crore, pertains to the application of GST on re-insurance commission earned by RGIC from both Indian and foreign reinsurance companies. The GST Authority contends that this commission forms part of the company’s recorded revenue and, consequently, is subject to GST.

Another notice, totaling Rs 359.70 crore, raises questions about the GST applied to co-insurance premiums received by RGIC in co-insurance transactions. PTI reports that the company maintains that the lead insurer has already fulfilled its GST obligation on the entire premium, but the GST department disagrees, arguing against provisions allowing one registered entity to collect and disburse tax on behalf of another in co-insurance arrangements.

In the third notice, amounting to Rs 78.66 crore, the DGGI initiated an investigation into the alleged wrongful availing of ITC related to marketing expenses between July 1, 2017, and March 31, 2022. In response, PTI states that the company deposited Rs 10.13 crore under protest.

The fourth show cause notice, totaling Rs 5.38 crore, focuses on the non-payment of GST under the reverse charge mechanism for reinsurance services imported from foreign reinsurers concerning an exempted crop insurance scheme from July 2017 to January 2018.

These show cause notices come at a critical juncture for RGIC, given that it constitutes nearly 70 per cent of the total value of Reliance Capital, which itself is navigating a debt resolution process through the National Company Law Tribunal (NCLT). As a result, the company’s auditors are expected to include these amounts as contingent liabilities in their quarterly results for the period ending 30 September.