HDFC Life (₹942 crores) and ICICI Prudential (₹492 crores) Face GST Demand Notices Totaling Rs 1,434 Crore, Raising Major Red Flags

ICICI Prudential, the prominent insurance firm, has received a show-cause-cum-demand notice from the Directorate General of GST Intelligence (DGGI) regarding an alleged Goods and Services Tax (GST) liability of approximately ₹492 crores. This notice covers the period from July 2017 to July 2022. ICICI Prudential has informed the stock exchanges about the notice and stated that it would respond and contest the matter appropriately.

The DGGI, which is responsible for preventing GST revenue leakage, has concluded its investigation into several insurance companies, including ICICI Prudential, regarding commission payments made to their agents. These firms are issuing show-cause notices as part of the ongoing scrutiny. ICICI Prudential has been served a notice for an alleged GST liability of nearly ₹492 crores.

Under Section 74 of the CGST Act, the DGGI has the authority to issue notices when there is wrongful availment of input tax credit (ITC). The DGGI teams in Mumbai and Meerut are investigating these insurance firms for suspected GST evasion and malpractices amounting to over ₹5,500 crores.

ICICI Prudential Response

It has stated that it will respond to the notice and contest the matter while denying any liability. The company has deposited ₹190 crores with the DGGI without accepting any liability in this regard.

Another insurance company, HDFC Life Insurance Co, recently received a show-cause-cum-demand notice from the GST authority for liabilities amounting to ₹942.18 crore from July 2017 to March 2022.

ICICI Prudential reportedly has the second-largest liability after HDFC Life and is being examined for claiming ITC without an actual supply of services. The role of PolicyBazaar is also being investigated in relation to ICICI Prudential’s case.

The appeals procedure for such notices involves challenging them before the adjudicating authority (AA). If the AA’s order is unfavourable, the company can further appeal to the tribunal or the high court. In HDFC Life’s case, the investigation found that there were no services involved with respect to at least 50 vendors.

The probe revealed that overriding commissions paid to agents were falsely accounted for as marketing, advertising, and manpower supply costs, benefiting the agents. The department investigated transactions exceeding ₹5,000 crore, resulting in a GST violation of ₹942 crore.

Apart from the DGGI, the income-tax department is also investigating these insurance companies for potential tax avoidance. The DGGI is specifically looking into unsubstantiated ITC claims, while the income-tax department is focusing on alleged tax evasion due to non-compliance with commission payment norms set by the Insurance Regulatory and Development Authority of India (IRDAI).

HDFC Life gets Rs 942-crore GST demand notice

HDFC Life Insurance has received a demand notice of over Rs 942 crore from the Directorate of Goods and Services Tax (GST) Intelligence (DGGI) for non-payment of GST. The notice is related to the claiming of input tax credit (ITC) against the supply of services, which the DGGI considers ineligible for such claims.

HDFC Life confirmed receiving the show cause cum demand notice for a tax amount of Rs 942,18,46,028 pertaining to the period from July 2017 to FY 2022. The company stated that it would take appropriate steps in due course to respond to the notice and contest the matter. It also mentioned that it had previously deposited Rs 250 crore under protest with the DGGI in relation to this matter.

HDFC Life highlighted that the issue of ITC is an industry-wide concern and indicated that it would address the show cause notice as required. Furthermore, the company shared that it had received approval from the Competition Commission of India for HDFC Ltd, one of its promoters, to increase its stake in HDFC Life to over 50%. In addition, HDFC Life informed that the Insurance Regulatory and Development Authority of India (IRDAI) had granted approval for the transfer of shares from HDFC Ltd to HDFC Bank.

These developments mirror the ongoing challenges faced by HDFC Life in relation to GST compliance and highlight the regulatory approvals obtained for changes in ownership structure within the company.

How These Developments Is A Major Red Flag
The recent developments involving HDFC Life and ICICI Prudential in relation to GST demand notices have raised concerns within the insurance sector. These notices, totalling Rs 1,434 crore, indicate potential non-compliance with GST regulations and have cast a shadow over the reputation of these prominent insurance companies.

The issuance of such demand notices reflects alleged irregularities in the claiming of input tax credit (ITC) against the supply of services. The Directorate of Goods and Services Tax (GST) Intelligence (DGGI) has raised objections, stating that the claimed ITCs were ineligible and not in accordance with the regulations. This raises questions about the compliance practices followed by these insurers and raises concerns regarding potential tax evasion.

The magnitude of the demand notices, with HDFC Life facing a demand of over Rs 942 crore and ICICI Prudential facing a demand of Rs 492 crore, is significant. These substantial amounts can have a material impact on the financials and profitability of these insurance companies. The potential financial burden may necessitate the allocation of significant resources to address these demands and contest them legally. Moreover, these developments have broader implications for the insurance sector as a whole.

They bring into question the overall governance and compliance framework within the industry. The investigation into alleged malpractices and suspected GST evasion, with a total value exceeding Rs 5,500 crore, raises concerns about the integrity and transparency of insurance operations.

Further, these incidents may erode customer trust and confidence in the insurance sector. Policyholders, shareholders, and other stakeholders may view these developments as indicative of potential systemic issues and lax oversight within the industry. This could negatively impact the reputation of insurers and lead to a decline in customer confidence, affecting customer retention and new business acquisition.

To mitigate these concerns, it becomes crucial for insurance companies to address these issues promptly, transparently, and in accordance with the regulatory requirements. Implementing robust compliance mechanisms, ensuring adherence to GST regulations, and demonstrating strong governance practices are essential to restore trust and confidence within the insurance sector.

The Last Bit, the GST demand notices served to HDFC Life and ICICI Prudential underscore the need for greater vigilance, compliance, and accountability within the insurance industry. Resolving these issues and strengthening the sector’s governance framework will be vital to preserve the industry’s reputation and ensure its sustained growth in the future.