New Delhi: Finance Ministry on Monday said it has issued summons to 16 insurance companies and is investigating the agreement between car manufacturers and insurers for wrongfully availing CENVAT credit in the range of Rs 1,200-2,500 crore.
Under the CENVAT credit scheme, a manufacturer or a service provider can avail credit of excise duty paid on inputs.
The Chennai Zonal Unit of the Directorate General of Central Excise Intelligence 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 per cent) and the car dealers (in the range of 15-45 per cent)," the ministry said in a statement.
The IRDA regulations do not allow any person other than insurance agents and insurance brokers, to sell vehicle insurance policies.
Further the maximum brokerage/commission payable for selling insurance policies is also capped at 10 per cent 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," the statement said.
"As these services were never provided by the car dealers", the Ministryu said 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 Rs 1,200-2,500 crore," it said.
The release did not name the insurance companies or car manufacturers.
