LIC not happy with Rs 806-cr GST diktat

The corporation is in the process of filing an appeal before the Commissioner (Appeals), Mumbai. We have been given 90 days’ time from the date of the receipt of the GST notice, so we will do it within that period and will pay 10% of the amount as mentioned in the notice - Sunil Agrawal, CFO at LIC, tells Bizz Buzz

Tax Tangle

• Authorities added interest to the dues
• LIC also disclosed less reverse charge mechanism (RCM) liability than shown by its suppliers
• Insurer says there would be no material impact on the company

Mumbai: Not happy with the notice for Rs806.3-crore GST payout, which has been slapped by the GST authorities on the State-owned insurance behemoth, Life Insurance Corporation of India (LIC), the corporation is in the process of filing an appeal before the Commissioner (Appeals), Mumbai.

The notice has been served to the corporation by the Maharashtra Deputy Commissioner of State Tax for various compliance-related shortcomings in FY18.

Talking to Bizz Buzz, Sunil Agrawal, Chief Financial Officer, LIC, said, “The corporation is in the process of filing an appeal before the Commissioner (Appeals), Mumbai. We have been given 90 days’ time from the date of the receipt of the GST notice, so we will do it within that period and will pay 10 per cent of the amount as mentioned in the notice, to GST authorities by the first appeal.”

The demand notice includes Rs365.02 crore of GST dues, Rs404.7 crore of penalty, and an interest payment of Rs36.5 crore.

LIC did not observe various rules, such as the non-reversal of input tax credit (ITC) according to the CGST rules 37 and 38 and the reversal of input tax credit availed from reinsurance, GST sources said.

Additionally, GST authorities added interest to the dues as a result of delayed payment made with GSTR-3B and interest on advance received. LIC also disclosed less reverse charge mechanism (RCM) liability than shown by its suppliers.

However, the insurer has stated in a regulatory filing that there would be no material impact on financials, operations or other activities of the company.

It may recalled that Deputy Commissioner of State Tax, Mumbai, Maharashtra issued a notice u/s-73 of the CGST/MGST Act, 2017 on December 28, raising a demand for Rs 806.30 crore for FY18.

Talking to Bizz Buzz, a senior official of the Corporation said requesting anonymity, “we would like to clarify that the premium amount for an endowment policy comprises various components like mortality charges, service charges, investment returns, etc., which vary depending upon age, health, habit and gender. Therefore, in case of non-ULIP, it is difficult to segregate the premium into taxable and non-taxable portions”.

In our understanding, the valuation rule 32(4) of CGST Rules, 2017, was framed, which provides that 25 per cent of the first year premium shall be considered as taxable value for the purpose of GST and accordingly the GST [email protected] per cent (25 per cent of 18 per cent) is applicable on the entire first year premium for such endowment policies. Similar provisions are prescribed in the said rules for other categories of policies and also for renewal premiums, he said.

However, 75 per cent of the non-taxable portion of the said premium is being considered as exempt supply and proportionate reversal of the Input Tax Credit claimed is being demanded by the GST authorities, he added.

The same issue is also being raised in various States. It is pertinent to note that as per Section 11 of the CGST Act, 2017 read with Section 6 of the IGST Act, 2017 ‘Exempt Supplies’ are to be notified through a specific Gazette notification. Life Insurance policies fall under taxable category.

We are following up with the competent authority for issuance of a clarification in this regard, the official said.

In a similar case which took place in Patna in March 2023, the GST authorities had raised GST demand of Rs237 crore from LIC. The corporation had to approach the Patna High Court through a Writ Petition in the absence of a ‘Tribunal’ to hear such matters. The corporation was directed to pay a pre-deposit amount of 20 per cent of tax determined.

The corporation has complied with the said order. The GST Council was likely to provide clarity on input tax credit for life insurers. However, there is no word from the GST authorities on the topic as yet. The complication on GST arises in case of traditional life policies or endowment plans, where GST is levied on only a portion of the plan. As a result, on the first-year premiums, GST is levied at 4.5 per cent, while for subsequent years, it is levied at 2.25 per cent.