AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 259
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....export of service. 4. The appellant acts as reinsurance brokers and arranges for reinsurance of Indian insurance companies with overseas reinsurers. Insurance companies are in the business of protecting the insured from potential loss by collecting a small amount of premium from them. Since the total number of people could take insurance and pay premium is much larger than the number of people who suffer loss and make claims, it is a business of spreading the risk among all the insured. However, where an insurance policy itself involves a large risk with a potential loss too great for insurance company, they in turn re-insure the policy with other insurance companies. In this case, the reinsurers were located abroad. The appellant identifies appropriate reinsurers located abroad for the Indian Insurance companies and negotiates terms of contracts with them. For this service, they get a commission called 'Reinsurance Brokerage'. It is alleged in the show cause notice that by and large what they provide is the service to the Indian Insurance companies for which remuneration is received in India currency from foreign insurance companies. It is the case of the Revenue that the Ho....
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....e or commission from the person who hired him. Reinsurance business is a little unusual. In the case of reinsurers, the reinsurance broker is approached by the insuring company which finds the risk of the policy too much to handle alone and is seeking reinsurance. The broker, in turn, explores potential reinsurers and presents the options to the insuring company. Thereafter, the broker also negotiates the terms with the reinsurance company. After conclusion of these terms, an agreement is made either with respect to a specific policy or as per agreement/contract. As per the market practice, in the case of reinsurance, the insuring company cedes some portion of the risk as well as premium to the reinsuring company. The insuring company can also cede the risk and premium to more than one reinsuring companies. Each reinsurer will get proportionate amount of premium and also shoulders proportionate amount of risk involved. An unusual feature of the mode of payment in this case is the payments to the reinsurer as well as settlement of claim of the insured companies are routed through the insurance brokers. Thus, when a reinsurance is taken by an Indian insurance company with a foreign r....
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....remium received from the insuring company and passes the rest to the reinsuring company, is the brokerage paid by the insuring company or the reinsuring company? (c) whether the brokerage received by the reinsurance broker in Indian Rupees should be deemed to have been received in foreign currency or otherwise? (d) In view of (a), (b) and (c) above, whether the service in question should be considered as export of service or otherwise? All these issues were also examined by the Hon'ble High Court of Madras in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. (supra) and have been decided in paras 53 to 60 as below: "53. Learned Standing Counsel appearing for the Department placed much emphasis on IRDA (Insurance Brokers) Regulations stating that the definition on 'reinsurance broker' clearly means that an insurance broker, who, for a remuneration, arranges reinsurance for direct insurers with insurance and reinsurance companies. In the present case, the assessee has acted as a re-insurance broker with the New India Assurance Co. Ltd. and with the foreign company and his functioning as re-insurer is pre-dominantly in relation to New I....
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....nies in settlement of balances due by either party. The correspondence between reinsured and reinsurer is channelled through the broker. It is vital for the reinsured and the reinsurer that the standard of organisation and administration of the reinsurance broker ensures reliability and efficiency, particularly with regard to contract and administration and handling of accounts, including cash loss settlements. The services of reinsurance brokers are usually required for placing and properly spreading high exposure cat covers (e.g. natural perils such as windstorm and earthquake), taking advantage of their contact networks with reinsurance markets worldwide. The reinsurer pays the reinsurance broker a commission, called brokerage, which remunerates the broker for his services in placing and handling reinsurance contracts. The reinsurance brokerage is further justified since the broker saves reinsurer acquisition costs, which he would otherwise incur through direct marketing efforts. The brokerage is usually stipulated as a percentage of the reinsurance premium; it has recently started to take the form of a fee, especially in case of specialised types of reinsuranc....
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.... (m) exercising due care and diligence at the time of selection of reinsurers and international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services." 56. From the facts narrated, we have culled out that the role of the assessee is collecting and remitting the premium. There is also a commitment on the part of the assessee in relation to any claims that may arise from New India Assurance Co. Ltd. in respect of re-insurance contract. IRDA (Insurance Brokers) Regulations further casts a duty on the assesee as to how the money collected in relation to the reinsurance contract should be dealt with by the broker. The terms contained in Regulation 23 speaks for itself that the role of the assessee as an insurance broker is not merely receiving and transmitting the amount as has been propounded by the Adjudicating Authority and the Tribunal. There is much more to be done by the Insurance broker even as per the IRDA (Insurance Brokers) Regulations, of which much emphasis has been made by the Tribunal in Paragraph No. 15. If this is the role of the assessee, we fail to understan....
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..... No. 1058 of 2009 is allowed and C.M.A. No. 1459 of 2009 is dismissed. No costs." 11. In the present case, Ld. Counsel for the appellant produces before us a sample copy of the Credit Note cum Statement of Account, dated 16.12.2009 which they had sent to the overseas reinsurer M/s Helvetia Swiss Insurance Company Limited in respect of the insurance taken by Reliance General Insurance Company Limited. This particular treaty was a surplus type treaty covering risks of fire, engineering, marine cargo, marine and miscellaneous. The Indian Company M/s Reliance General Insurance Company Limited ceded 3.5% of the risk and premium to M/s Helvetia. Under each head, the premiums received by M/s Reliance General Insurance are taken as credit and the commission and claims paid by Reliance General Insurance are taken as debit. The difference between the credit and the debit is the reinsurers share. This could be positive or negative depending upon whether more premium has been received or there are more claims under the scheme during the period. In respect of some schemes, the difference was positive while in respect of others it was negative. Of this reinsurer's share, the share of M/s ....