Circular No. 217/11/2024-GST [C10-7DF]

The insurance companies, which are engaged in providing general insurance services in respect of insurance of motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred by the policy holders and settle the claims in two modes i.e., Cashless or Reimbursement.

1.2 Under both modes of settlement, the insurance company accounts for repair liability (as assessed by the Surveyor/ Loss Assessor) as claim cost and is liable to make payment of approved repair charges to the garage. In both the cases, the invoices are generally issued by the garages in the name of Insurance companies. While in case of Cashless Mode, the insurance companies directly make the payment of approved repair charge to the Network Garage, in case of Reimbursement mode, the payment is first made by the Insured to the Non-Network Garage, which is subsequently reimbursed by the insurance company to the Insured, to the extent of approved repair/ claim cost. Accordingly, the insurance companies may be availing input tax credit (ITC) on the tax paid in respect of such repair services provided by the garages in Cashless

Mode of claim settlement as well as in Reimbursement Mode of claim settlement on the basis of the invoices issued by the garages in their name.

1.3 It has been represented by the insurance companies that in case of reimbursement mode of claim settlement, some field formations are raising objections on availment of ITC by insurance companies in respect of repair invoices issued by the non-network garages on insurance companies. It is being claimed by the said field formations that in case of reimbursement mode of claim settlement, there is no credit facility offered by the garages to the Insurance Companies and therefore, the supply of repair service is made by the garage to the insured and not to the insurer. Accordingly, it is being claimed that ITC of repair invoices, in such cases, should not be available to the insurance companies.

1.4 Request has been received seeking clarity on availability of ITC in respect of repair expenses incurred in case of reimbursement mode of claim settlement.

2. In order to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in exercise of its powers conferred by section 168(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”), hereby clarifies the following:

S. No. Issue Clarification

1 The insurance companies, which Under reimbursement mode of claim settlement, are engaged in providing general the insured avails repair services from non-network insurance services in respect of garages with which the insurance companies do not insurance of motor vehicles, have routine business relationship. The said insure the cost of repairs/ garages issue the invoice in the name of the damages of motor vehicles insurance company while not extending credit incurred by the policyholders and facility for the repair costs. Accordingly, the policy settle the claims in two modes holder/ insured makes payment of such repair i.e., Cashless or Reimbursement. services, and subsequently, the insurance company Whether ITC is available to reimburses the approved claim cost to the insured. insurance companies in respect Section 17(5) of the CGST Act provides that ITC of repair expenses reimbursed by in respect of services of repair of motor vehicles

the insurance company in case shall be available where received by a taxable of reimbursement mode of claim person engaged in the supply of general insurance settlement. services in respect of motor vehicles insured by him.

Section 16 of CGST Act provides that every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49 of the said Act, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Further, section 2(93) of CGST Act defines “recipient" of supply of goods or services or both, as the person who is liable to pay the consideration, where such consideration is payable for the said supply of goods or services or both.

Moreover, as per section 2(31) of CGST Act, “consideration” includes any payment made or to be made in relation to supply of the goods or services or both, whether by the recipient or by any other person.

In reimbursement mode of claim settlement, the payment is made by the insurance company for the approved cost of repair services through reimbursement to the insured. Further, irrespective of the fact that the payment of the repair services to

the garage is first made by the insured, which is then reimbursed by the insurance company to the insured to the extent of the approved claim cost, the liability to pay for the repair service for the approved claim cost lies with the insurance company, and thus, the insurance company is covered in the definition of “recipient” in respect of the said supply of services of vehicle repair provided by the garage under section 2(93) of CGST Act, to the extent of approved repair liability. Moreover, availment of credit in respect of input tax paid on motor vehicle repair services received by the insurance company for outward supply of insurance services for such motor vehicles is not barred under section 17(5) of CGST Act.

Accordingly, it is clarified that ITC is available to Insurance Companies in respect of motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement.

2. Where the invoice raised by the In cases where the garage issues two separate garage also includes an amount invoices in respect of the repair services, one to the in excess of the approved claim insurance company in respect of approved claim cost, the insurance company only cost and second to the customer for the amount of reimburses the approved claim repair service in excess of the approved claim cost, cost to the garage after input tax credit may be available to the insurance considering the standard company on the said invoice issued to the deductions viz. the compulsory insurance company subject to reimbursement of deductibles to be borne by the said amount by insurance company to the insured, depreciation, customer.

improvements outside the However, if the invoice for full amount for repair coverage, value of salvage of the services is issued to the insurance company while damaged parts of the motor the insurance company makes reimbursement to vehicles, etc. The remaining the insured only for the approved claim cost, then, amount is to be paid by the the input tax credit may be available to the insured to the garage. insurance company only to the extent of reimbursement of the approved claim cost to the What is the extent of ITC insured, and not on the full invoice value. available to the insurer in such cases?

3. Whether ITC is available to the In such a case, condition of clause (a) and (aa) of insurer where the invoice for the section 16(2) of CGST Act is not satisfied and repair of the vehicle is not in accordingly, input tax credit will not be available to name of the insurance company. the insurance company in respect of such an invoice.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version would follow.

Sanjay Mangal Principal Commissioner (GST)