The Chennai Zonal Unit of the Directorate General of Central Excise Intelligence, Ministry of Finance has been conducting investigation under summons against 16 Insurance Companies engaged in providing motor-vehicle insurance policies, for wrongly availing Cenvat Credit on the bogus invoices of the car dealers.

 During the course of investigation, it has been noticed that the car manufacturers enter into agreement with the Insurance Companies for appointing them as Preferred Car Insurance Companies (PICs) and instruct their car dealers to sell their insurance policies to PICs only. Such PICs pay commission on the value of the insurance policies to the car companies (in the range of 2-3%) and the car dealers (in the range of 15-45%).

 The IRDA regulations do not allow any person other than insurance agents and insurance brokers approved by IRDA, to sell vehicle insurance policies. Further the maximum brokerage/commission payable for selling insurance policies is also capped at 10% of the premium. To circumvent these regulations, the Insurance Companies ask the car dealers to raise invoices to show that the car dealers have provided the Insurance Companies services such as advertisement, renting of computers/ printers, training, arranging customer awareness program etc.

 As these services were never provided by the car dealers, their invoices are not permissible documents under the CENVAT Credit Rules, 2004 and the Service Tax Rules, 1994 for availing Cenvat credit by the Insurance Companies. These facts have been confirmed by the employees of the Insurance Companies and the car dealers in their voluntary statements.

 The estimated incorrect Cenvat Credit involved in this case is ₹ 1200-2500 crore.

Cenvat credit misuse: insurers investigated for claiming improper tax credits using bogus dealer invoices contrary to insurance regulations. Investigation alleges insurers, appointed as preferred providers by car manufacturers, used dealer-issued invoices for nonexistent services to wrongfully claim Cenvat Credit. Such arrangements conflict with IRDA regulations that restrict who may sell vehicle insurance and cap commissions; the invoices therefore are not permissible under the CENVAT Credit Rules, 2004 and the Service Tax Rules, 1994. Voluntary statements corroborate the scheme and the estimated incorrect credit is substantial.