NEW DELHI: The Bombay High Court on Friday granted a stay on goods and services tax (GST) demands exceeding ₹10,000 crore to 13 insurance companies over co-insurance premiums and ceding commissions. The court noted that circulars released by the Central Board of Indirect Taxes and Customs (CBIC) following recommendations of the GST Council, clearly exclude such transactions from the ambit of GST.
Insurance companies including Aditya Birla Health Insurance, SBI General Insurance Company, Oriental Insurance, along with several others filed the case after they received tax demands alleging that certain insurance-related transactions were incorrectly classified and subjected to GST. The insurers contended that the CBIC circulars provided explicit exemption, a position the court found prima facie persuasive while granting interim relief. They contended on the ground that identical demands had already been dropped by departmental authorities in Meerut, Delhi, Pune and Mumbai jurisdictions in conformity with the Circulars.
The next hearing is scheduled on February 18. Co-insurance is an arrangement, under which an insurance company shares the risk of an insurance cover with a re-insurer. A ceding commission is a payment from a reinsurer to an insurer that transfers risk.
“The order reinforces that such circular-based guidance cannot be disregarded in assessment proceedings,” said Amit Maheshwari, Managing Partner, AKM Global, a tax and consulting firm. He said that the stay will help preserve cash flows and reinforces the importance of consistent implementation of the circular, while the broader legal issue is being examined on merits
The case came to the court a day after, the Bombay High Court also extended interim protection to Himesh Foods, the operator of the Mad Over Donuts chain in India, against a GST demand of ₹57.29 crore along with imposing additional penalties. The Directorate General of Goods and Services Tax Intelligence (DGGI) issued a show-cause notice alleging that over-the-counter sales of donuts could not be categorised as restaurant services. Thus, according to the tax authority, such sales were held liable to GST at 18%, instead of the 5% rate applied by the company.