Input credit of GST in Case of Accident claim

[Yogesh Ashar]

Dear Sir

In case of transporter who is charging GST on forward charge basis @12%, the query is in reference to insurance claim received on accident of truck. The Insurance company settled @75% of the amount. 25% is borne by the transporter. The amount billed by the repairer is in the name of the Company, where he has billed for the total amount.

Queries

1. Whether any GST has to be charged to the Insurance Company and accordingly a tax invoice needs to be raised for the 75% amount settled by the Insurance company

2. Whether full ITC can be claimed by the Tranporter

3. Whether it will have to reverse 75% of the ITC

Thanks

[YAGAY andSUN]

In our view proportionate ITC needs to be reversed.

[Abhishek Sethi]

Prima facie, Insurance claim amount should be treated as compensation, not consideration - thus no GST.

Secondly, there doesn't seem to be any requirement for reversal of credit by transport company, in as much consideration is being paid by Insurance Company on behalf of Transporter (who had paid insurance premium to ensure coverage of such situations) and service is being received by transporter in full

[KASTURI SETHI]

Dear Abhishek Sethi,

Logically you may be correct but we are to follow legal definition of, 'Consideration' as per Section 2(31) of CGST Act, 2017.

(31) “consideration” in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government :

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

AI Summary

Insurance payments as consideration may require GST input tax credit reversal when insurer pays for supplier on behalf of recipient Whether insurance payments made to a supplier for repair of a transport vehicle constitute consideration for GST purposes and the consequent effect on input tax credit (ITC) is contested: one view requires proportionate reversal of ITC because the insurer's payment reduces the transporter's outlay; another treats the insurer's payment as compensation, not consideration, arguing no GST or ITC reversal is necessary, raising ancillary questions on tax invoice issuance and apportionment of credit.