At least 14 public and private re-insurance firms are being probed by the Director General of Central Excise Intelligence (DGCEI) for non-payment of service tax of over Rs 1,000 crore on re-insurance of weather-based crop insurance provided to farmers in Maharashtra between 2011 and 2016. The service tax department has issued show-cause notices to General Insurance Corporation of India (GIC) and New India Assurance. The department has demanded Rs 388 crore from GIC and Rs 45 crore from New India Assurance. “Weather-based crop insurance is a government scheme… exempt from service tax. But the insurers have reinsured the insurance by other insurers. That reinsurance is not exempt from service tax. We are asking them to pay service tax on the premium which is being paid,” said a source. “While the probe is complete in three cases, as of now notice has been issued to two insurers. Apart from these 11 other companies are being investigated,” the source said. The weather-based crop insurance scheme provides coverage and financial support to farmers in the event of failure of crops due to adverse weather. The DGCEI is now planning to write to its Delhi headquarters requesting the agency to probe all re-insurance of weather-based crop insurance across the country, said sources. “In reply to the show-cause notice, GIC has defended its stand for not acknowledging the service tax liability on the strength of the exemption notifications issued by Centre from time to time,” said the official spokesperson of GIC. GIC said that before July 2017, the central government exempted the taxable services in relation to general insurance provided under the Weather-Based Crop Insurance Scheme or the modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture, from the whole of service tax leviable under Section 66 of the Act. From July 2012, the government “exempted certain services of general insurance business provided under various schemes from service tax, one of which is Weather-Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme”. “Further Service tax being an indirect tax, if levied on re-insurance transaction would be collected from the insurance firm directly collecting premium from the customers. This service tax charged would be a cost for the insurance company since the credit of the same would not be allowed under Rule 6 (1) of the CENVAT Credit Rules, 2004. If these services were taxable, the premium payable by the farmer or the central/state government would have been higher,” said the officials spokesperson of GIC. According to the service tax department, under section 66 F 1 of the Service Tax Act unless specified, reference to a main service cannot not include reference to a service which is used for providing main service. Since re-insurance is not specified in the Act it is not exempt from service tax. Email and phone calls to New India Assurance did not elicit any response. Source - indianexpress.com