Central excise sleuths in Chennai unearth Rs 2,500 crore fraud

The Chennai zonal unit of the Directorate General of Central Excise Intelligence has been conducting investigation under summons against 16 insurance companies “engaged in providing motor-vehicle insurance policies, for wrongly availing Cenvat credit on the bogus invoices of the car dealers”.

Under the Cenvat credit scheme, a manufacturer or a service provider can avail credit of excise duty paid on inputs.

During the course of investigation, it was noticed that the car manufacturers enter into agreement with the insurance companies for appointing them as preferred car insurance companies (PICs) and instruct their car dealers to sell their insurance policies to PICs only for a commission, a press release from the finance ministry said.

Car dealers get 15-45 per cent commission while the car manufacturers get around 3 per cent.

IRDA regulations do not allow any person other than insurance agents and insurance brokers, to sell vehicle insurance policies and receive commission, that too with a cap of maximum 10 per cent.

To circumvent these regulations, the insurance companies ask car dealers to raise fake invoices to show that the car dealers have given the insurance companies services like advertisement, renting of computers/ printers, training, arranging customer awareness program etc, the statement said.

The estimated incorrect Cenvat credit involved in this case is Rs 1,200-2,500 crore, the statement said.