INSURERS CLAIMING ITC ON REPAIRS OF MOTOR VEHICLES OF INSURED
IS IT LEGAL OR ILLEGAL ?
The Question raised is for seeking clarification by the authorities. The opinion given here is solely of the author and may or may not be true interpretation of the GST laws and amendments in GST laws in INDIA.
WHAT IS PRESENT SCENARIO
At present insurers are claiming for the ITC paid on repairs of accidental vehicles for the part being insurers liability. Here point to note that they are claiming ITC for insured vehicles which are registered in name of insured and being repaired by the repairs workshops.
The insurers are collecting GST on policies issued for motor vehicles and depositing the same with the GST. They are also availing ITC for services obtained from intermediaries and other ITC available to them in rendering the insurance services.
PRESENST STATUS OF GST LAW FOR ITC OF REPAIRS AND MAINTAINANCE.
Under Sec 17 (5) of GST CGST rules the clarification for blocked credit was not clear for repairs and maintenance of vehicles. However after the amendment in sec 17(5) post 30.08.2018 the vehicles repairs have been put under blocked credit vide section ab as under
" services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) "
The above amendment clarifies that persons registered under GST could avail for repairs and maintenance of motor vehicles till 29.08.2018 but insurers could do so for the insured vehicles at any time pre or post this amendment is not mentioned.
The insurers are taking the ITC of such motor vehicles on which basis of the GST law is not understood. This does not seem falling under furtherance of business also.
HOW AND WHY IT HAPPENED
Post GST there was lot of confusion among all. The repairers were not even able to issue the bills of repairs under GST for some time. The Frontrunner in the process was Maruti and they in their billing system software made scheme of issuing two invoices of one repairs job.
They provided one bill for the customer being his share of repairs liability under the insurance policy and one bill for insurers (With insurers GSTIN) being insurers liability for the repairs job.
Example One car met with accident and reported at Maruti dealer. Say the repairs cost was Rs 10000.00 and insurers liability being 9000.00 and customer part being Rs 1000.00.
The repairers issued one bill for Rs 9000.00 to insurers with their GSTIN and Rs 1000.00 to the customer ( Insured ). The repairers had collected GST on complete bill i.e. combined amount of insurers and insured and deposited with the GST. However the insurers got ITC on their share.
After Maruti the insurers started to demand similar bills from other repairers and thereby started to get ITC for the insurers liability in the vehicle claims.
WHAT GOVT INTENDED IN THIS SCENARIO
If from common mans perspective one thinks what the GST council intended? . One will assume that Govt had kept most of the motor vehicle parts in highest Tax slab of 28% and labours and services of motor vehicles at 18% slab.
Thereby Govt seems intending for gain good tax collection from repairs of vehicles. Now it most of it had to go to as ITC to insurers then such high tax slab is of no purpose as same is going to profit bucket or say reduced liability of insurers to the tune to minimum 20%.
The insured vehicle had been end consumer of manufactured motor vehicle parts and thereby the ITC on same should not have moved further in my opinion. Had there been value addition to it from insures and final GST increased the insurers would have every right to claim ITC but same is not the case.
WHY IT IS NOT OBJECTED BY GST
The GST is a dynamic system and any wrong done in present or past can be tracked anytime and can be amended. It’s been more than one year but still no one has objected or found fault in the said ITC claim by insurers and all Indian GIC insurers are claiming the ITC in this way .
Sooner or later the GST council will clear their position on the same and thereafter the same may become crystal clear.
The author had pointed same since 2016 on various forums but no one heard the same. Even had discussed with various people but mostly the ignorance to the GST provisions as an excuse by them could lead to no answer.
GST TAX COLLECTION
As learnt from various news channels the Govt is claiming that the GST collection is satisfactory and has some shortfall than expected. Here I point out that If such ITC are being wrongly taken by the insures and should have been part of the GST tax then the shortfall as being noticed by Govt will get reduced drastically. The GST council may find such other wrong interpretations ( If ture) and may improve the GST tax collection.
I do not intend to defame or allege either the insurers or the repairers. I too do not have complete knowledge of the GST and whatever I could gather made me to believe that this may be wrong and should be highlighted such that if the same is wrong the same gets corrected at the earliest.
View of learned persons are welcome along with criticism.
NARESH K TAGOTRA