ITC Entitlement on Repair Expenses in Reimbursement Claim Settlements

Insurance companies providing general insurance for motor vehicles settle repair or damage claims through two modes:

• Cashless Mode: The insurance company directly pays the repair charges to a network garage.
• Reimbursement Mode: The insured first pays the repair costs to a non-network garage, and the insurance company later reimburses the insured for the approved amount.

LIABILITY FOR REPAIR COSTS.

In both settlement modes, the insurance company accounts for the repair liability as assessed by a surveyor or loss assessor. The approved repair charges are paid to the garage, and the garages usually issue invoices in the name of the insurance companies.

CLAIM PROCESS FOR EACH MODE.

• Cashless Mode: The insurance company directly settles the payment with the network garage based on the approved repair costs.
• Reimbursement Mode: The insured pays the non-network garage, and then the insurance company reimburses the insured based on the approved repair cost.

INPUT TAX CREDIT (ITC) ON REPAIRS.

Insurance companies claim Input Tax Credit (ITC) on tax paid for repair services under both modes. The invoices from garages (network or non-network) are generally issued in the name of the insurance companies, enabling them to claim ITC.

OBJECTIONS REGARDING ITC IN REIMBURSEMENT MODE.

GST authorities have raised objections to insurance companies availing ITC on repair invoices in the reimbursement mode. They argue that since the insured initially pays for the service, ITC should not be available to insurance companies.

KEY DOUBTS TO ANALYSE.

1. Is ITC Available to Insurance Companies for Repair Expenses Reimbursed in the Reimbursement Mode?

Process in Reimbursement Mode.

• The insured avails repair services from non-network garages and makes payment. The insurance company reimburses the insured for the approved claim cost.
• The garage issues an invoice in the name of the insurance company, even though the insured initially paid the repair costs.

ITC Provisions under CGST Act.

• Section 17(5) allows ITC on motor vehicle repair services when used by insurance companies to provide general insurance.
• Section 16 entitles registered persons (insurance companies) to claim ITC on services used in the course of their business.
• Section 2(93) defines the recipient as the person liable for the payment. Since the insurance company ultimately reimburses the insured, it qualifies as the recipient.
• Section 2(31) defines consideration as any payment made in relation to goods/services, even if paid indirectly (through reimbursement).

Conclusion:

ITC is available to insurance companies for motor vehicle repair expenses incurred under the reimbursement mode. Despite the insured initially paying, the insurer bears the final liability for the approved claim cost, making it eligible for ITC.

2. What is the Extent of ITC Available to the Insurer when the Invoice Includes an Amount Exceeding the Approved Claim Cost?

• Scenario 1: Two Separate Invoices.

i) Invoice 1: Issued to the insurance company for the approved claim cost.

ii) Invoice 2: Issued to the insured for any excess cost beyond the approved claim.

ITC Availability: ITC is available only for the amount on Invoice 1, as the insurance company is liable only for the approved claim cost. ITC is not available on Invoice 2 (the excess amount).

Scenario 2: Single Invoice to the Insurance Company for the Full Amount.

i) A single invoice is issued to the insurance company for the entire repair cost, but the insurer only reimburses the insured for the approved claim cost.

ITC Availability: ITC is available only for the portion of the invoice representing the approved claim cost. ITC cannot be claimed on the entire invoice value, as the insurance company is not liable for the excess cost.

• Conclusion:

The insurer can claim ITC only for the portion of the repair services it is directly liable for, i.e., the approved claim cost. ITC is limited to the amount reimbursed to the insured, and not for any excess amounts.

3. Is ITC Available to the Insurer if the Repair Invoice is Not in the Name of the Insurance Company?

• Conditions under Section 16(2) of the CGST Act.

i) Clause (a): The recipient must be in possession of a tax invoice issued by the supplier.

ii) Clause (aa): The supplier must furnish the invoice details in their GST return, and these details must be communicated to the recipient (insurance company).

If the repair invoice is issued in the name of the insured (and not the insurance company), the conditions under Section 16(2) are not met. Therefore, the insurance company cannot claim ITC.

Conclusion:

If the repair invoice is not in the name of the insurance company, the insurer cannot claim ITC. To claim ITC, a separate invoice for the approved claim cost must be issued in the name of the insurance company.

FINAL CONCLUSION.

• ITC Availability: Insurance companies can claim ITC for motor vehicle repairs in reimbursement mode but only for the approved claim cost.
• Extent of ITC: ITC is limited to the portion of the invoice for which the insurance company is directly liable. ITC is not available on any excess amount paid by the insured.
• Invoice Name Requirement: The insurer cannot claim ITC if the repair invoice is not issued in its name. ITC can only be claimed when the invoice is addressed to the insurance company for the approved claim cost.