INSURANCE AUXILIARY SERVICES

[Mr. M. GOVINDARAJAN]

     Service tax has been levied on the services provided for Insurance Auxiliary services in relation to general insurance business by the Finance Act, 2001 with effect from 16.07.2001 and in relation to Life Insurance business by the Finance Act, 2002 with effect from 16.08.2002.

     Sec. 65(55) of the Finance Act, 1994 ('Act' for short) defines 'Insurance Auxiliary Service' as any service provided by-

·        An actuary; or

·        An intermediary; or

·        An insurance agent

In relation to general insurance business or life insurance business and includes:

§         Risk assessment;

§         Claim settlement;

§         Survey; and

§         Loss assessment.

As per Sec. 65(1) of the Act the term 'Actuary' has the meaning assigned to it in Sec. 2(1) of the Insurance Act, 1938 which provides that actuary means an actuary possessing such qualification as may be specified by the regulations made by the Authority.   Actuarial services are provided by the actuaries to the insurance companies. They cover diverse fields such as calculating insurance risks and premia, insurance claims adjustment services such as services of investigating claims, determining the amount of loss or damages covered by the Insurance polices and negotiating settlements, services of examining claims which have been investigated and authorization of payments and damage settlement services, administration of insurance including salvage administration and insurance consultancy services. 

     As per Sec. 65(56) of the Act, the terms 'Intermediary or Insurance Intermediaries' have the meaning assigned to it under Sec. 2(1) of the Insurance Regulations and Development Authority Act, 1999 which provides that intermediary or insurance intermediary includes insurance brokers, re-insurance brokers, insurance consultants, surveyors and loss assessors.

     As per Sec. 65(54) of the Act, the term 'Insurance Agent' has the meaning assigned to Sec. 2(10) of the Insurance Act, 1938 which provides that insurance agent means an insurance agent licenced under Sec. 42 of the Insurance Act who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business relating to the continuance, renewal, revival of polices of insurance.

     As per Sec. 65(49) of the Act 'General Insurance Business' has the meaning assigned to it in Sec. 3(g) of General insurance Business (Nationalization) Act, 1972 which provides that general insurance means fire, marine or misc. insurance business whether carried singly or in combination with one or more of them but does not include capital redemption business and annuity certain business.

     As per Sec. 65(61) ' Life Insurance Business' has the meaning assigned to it by Sec. 2(11) of the Insurance Act, 1938, which provides as the business of effecting contracts of insurance upon human life, including and contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include-

§         The granting of disability and double or triple indemnity accident benefit, if so provided in the contract of insurance;

§         The granting of annuities upon human life; and

§         The granting of superannuation allowances and annuity payable out of any fund applicable solely to the relief and maintenance of person engaged in any particular profession, trade or employment or of the dependent of such person.

Insurance Agents provide service to insurance company in relation to marketing of insurance policies.   They also provide service to the policy holder by providing information/advice on the types of insurance policies, processing of documentation, remittance of insurance premium etc.,   Service tax is liable to be paid by the insurance auxiliary service provider except in case of insurance agents.   Insurance agents normally do not charge the policy holder.   However, the insurance company pays the agent a commission on a periodic basis.   As is the case in respect of general insurance business, it has been provided in the Service Tax Rules that in the case of an insurance agent for life insurance, the person liable to pay service tax will be concerned insurance company who has appointed the agent.

     Sec. 65(105) (zl) defines taxable service means any service provided or to be provided to a policy holder or any person or insurer, including re-insurer by an actuary or intermediary or insurance intermediary or insurance agent, in relation to insurance auxiliary services concerning general insurance business.

     Sec. 65(105)(zy) defines taxable service means any service provided or to be provided to a policy holder or any person or insurer including re-insurer by an actuary, or intermediary or insurance intermediary or insurance agent, in relation to insurance auxiliary services concerning life insurance business.

     Sec. 65(58) of the Act defines 'insurer' as any person carrying on the general insurance business or life insurance business and including a re insurer.

     The term 'person' has not been defined under the provisions of service tax. The General Clauses Act, 1897 defines 'person' as person include any company or association or body of individual whether incorporated or not.

     Sec. 65(80) of the Act the policy holder has the meaning assigned to it.  Sec. 2(2) of the Insurance Act, 1938 which provides that policy holder includes a person to whom the whole of the interest of the policy holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasable or is for the time being subject to any condition.

     A point has been raised that the service provider, namely, an actuary, an intermediary or insurance intermediary or an insurance agent is reimbursed certain out of pocket expenses such as travelling expenses, boarding and lodging charges on actual basis. These expenses are reimbursed in addition to the prescribed fee. Whether such reimbursements will be included in the taxable value?  In this regard the department clarified that the amount billed to the client on account of out of pocket expenses which are reimbursable on actual basis, such as travelling, boarding and lodging expenses, the same are not subject to service tax.  In this respect the assessee may be required to provide document evidence substantiating his claim.

     Another point raised is to whether in cases where the bills raised by the service provider are revised, the service tax is payable on the billed amount or on the actual amount received. In this regard the Department clarified that Rule 6 of the Service Tax Rules, 1994 provides for payment of service tax only on the amount received and not on the amount raised for the services provided. As such service tax is payable on the amount actually received.

     Accounting code of Insurance Auxiliary services in relation to-

General Insurance -        Service Tax - 00440169

              Interest/Penalty - 00440170

              Deduct Refund - 00440171

Life Insurance        -       Service Tax - 00440185

                                     Interest/Penalty - 00440186

                                   Deduct Refund - 00440187

CASE LAWS:

1. Life Insurance Corporation of India V. Commissioner of Central Excise, Madurai -2008 (12)STR 356 (Tri. Chennai) = [2008 -TMI - 31461 - CESTAT, CHENNAI]

The tribunal held that it has been clarified that out of pocket expenses of the agents which are reimbursed on actual basis by the Corporation are not to be included in the taxable value of 'Insurance Auxiliary service' for the purpose of payment of Service tax.

2. Life Insurance Corporation of India Limited V. Commissioner of Central Excise, Jaipur - 2008 (11) STR 59 (Tri. Del) = [2008 -TMI - 4610 - CESTAT, NEW DELHI]

The appellant is engaged in providing services of life insurance. The service tax on auxiliary insurance service was imposed with effect from 16.8.2002 and the same is payable by the appellant and not by the insurer. The point of dispute is with reference to certain payments which represent allowable reimbursement paid to the effect that these amounts could not be subject to levy or tax in view of Board's letter dated 09.02.04 clarifying the matter. The tribunal found that CBEC in their letter dated 09.02.04 has given elaborate clarification with regard the deduction of certain expenses like travelling allowance etc., for the service tax purpose. Prima facie the tribunal found that the appellant's case is backed by Board's clarification. The tribunal order complete waival of pre deposit of duties and penalties till the disposal of the appeal.

3. Bajaj Allianze Life Insurance Co., Ltd., V. Commissioner of Central Excise, Pune - III - 2007 (8) STR 301 (Tri. Mumbai)

There is a prima facie force in the submission of the applicants that such gifts and target incentives are not includible in the value of insurance auxiliary services rendered by them.

4. Supra Sesh General Insur. Serv. & Brokerages Private Limited V. Commissioner of Service Tax - 2007 (8) STR 513.

Reinsurance brokerage is received from overseas companies. CBEC circular in the light of relevant Export of Services Rules, 2005 and Notification 6/99-ST, 2/03-ST and 21/03-ST provides that there shall be no service tax on export of services irrespective of the fact that consideration is received in Indian currency. Since recipients of service reside abroad and no office in India the said service comes under export of service and not taxable.