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Chartered Accountants

Comptroller and Auditor General of India

Report No. 18 of 2015

The Report has been laid on the table of the Rajya Sabha on 24-07-2015 and Lok Sabha on 27-07-2015

Chapter VI: Ministry of Finance

Insurance Regulatory and Development Authority

6.1 Avoidable expenditure on service tax

Failure to recover service tax from clients and subsequent payment thereof from own funds resulted in avoidable expenditure of Rs. 22.58 crore.

Insurance Regulatory and Development Authority (IRDA), Hyderabad has been rendering services to the Public/ Private Insurance companies, agents, brokers etc. by collecting charges/ fees. As per the provisions of the Finance Bill 2012, service tax is to be levied on all services except those specified under Section 66D (Negative List and exempted services). The services provided by IRDA were not included in the negative list. Hence, IRDA was required, with effect from 1 July 2012, to collect service tax on the charges/ fees collected for the services provided by it.

IRDA, instead of collecting the tax, requested (April 2012) the Ministry to get the services rendered by it included in the Negative List. IRDA did not, however, collect the service tax as per the provisions of the Act pending decision from the Ministry.

Ministry stated (July 2013) that it was a conscious decision of Government to keep exemptions at the minimum and as such the services of IRDA are liable to service tax.

Subsequently, IRDA sought opinion from a tax consultant, who confirmed (December 2013) the service tax liability and assessed the same for the period from 1 July 2012 to 2 December 2013 at Rs. 17.09 crore.

IRDA decided (December 2013) to collect service tax payable from 1 January 2014 from service receivers. It however, paid the service tax of Rs. 22.581 crore for the period 01.07.2012 to 31.12.2013.

Audit observed (February 2014) that

·       IRDA did not consider it prudent to recover service tax from its service receivers pending Ministry’s reply which was received after 15 months

·       Even after receipt of Ministry’s reply in July 2013, IRDA did not initiate action to recover service tax from its clients and instead it decided to pay the tax from its own funds.

IRDA stated (September 2014) that

·       As there was no clarity on the subject, it sought the opinion of Ministry and the clarification was received in July 2013.

·       Opinion sought from tax consultant was for calculation of service tax and not regarding its applicability.

·       It felt that it was cumbersome to collect the service tax from agents (20 lakh), brokers (300), etc. and hence a conscious decision was taken to bear the service tax liability.

The reply needs to be viewed in light of the following:

·       Services provided by IRDA were covered neither in the negative list nor by any specific exemption notification and were therefore liable to service tax.

·       Tax consultant in his opinion also confirmed that services provided by IRDA were neither covered under negative list nor Mega Exemption List, therefore attracted service tax.

·       IRDA could have attempted to collected service tax from its service recipients at the time of renewal of licenses as the services provided by IRDA were clearly taxable and its decision to bear the burden without initiating steps to recover the same was flawed.

Therefore IRDA’s decision firstly to not collect service tax and subsequently to bear the tax liability resulted in an avoidable expenditure of Rs. 22.58 crore. The matter was reported to Ministry (October 2014); their reply was awaited.

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CAG Report-IRDA Failed to Recover Rs 22.58 Crore Service Tax from Clients, Paid it from Own Funds Due to its Request to cover in Negative List not Granted | 03-08-2015 |