ICICI Lombard GST Reprieve: ₹1,728.86 Cr Demand Stayed
The ₹1,728.86 crore GST demand against ICICI Lombard General Insurance has been stayed by the Bombay High Court, giving temporary relief to the insurer. This case highlights growing scrutiny on input tax credit (ITC) practices and commission payments in the insurance sector.
Let’s simplify the issue for Indian taxpayers, professionals, and insurers.
What is the ICICI Lombard GST case about?
The Directorate General of GST Intelligence (DGGI) had issued show-cause notices to ICICI Lombard for alleged wrongful availment of input tax credit on payments made to motor vehicle dealers.
Allegation:
ICICI Lombard paid commissions/incentives to auto dealers for selling insurance policies bundled with vehicle sales — and claimed ITC on these.
GST Department’s View:
- These payouts are “business promotion expenses”, not tied to taxable outward supplies.
- Hence, ineligible for ITC under Section 17(5) of CGST Act.
- The total tax demand: ₹1,728.86 crore (tax + interest + penalty).
What did the Bombay High Court say?
- ICICI Lombard filed a writ petition challenging the show-cause notice.
- The Bombay HC has stayed further proceedings, observing prima facie concerns on classification and jurisdiction.
Legal Reference:
Stay granted under Article 226 of the Constitution on grounds of procedural and legal infirmities.
This is an interim relief, not a final verdict. The case will proceed on merits.
GST Input Credit Rules in Focus
Here’s a simplified take on the key legal provision involved:
| Section | Provision | Impact |
|---|---|---|
| 17(5)(h) | No ITC on goods lost, stolen, destroyed, written off, or given as gift/free samples | Used by GST officials to disallow ITC on marketing payouts |
| 16(1) | ITC allowed only for goods/services used in course or furtherance of business | Taxpayer argument: Commissions aid business, hence ITC valid |
| Circular No. 105/24/2019-GST | Clarified ITC in case of gifts/free samples not admissible | Being used in these disputes |
Insurance Sector and GST: Why this matters
This is not the first time insurers have faced tax demands over dealer incentives.
- Similar notices have been issued to HDFC Ergo, Bajaj Allianz, and others.
- The insurance + automobile bundling model is under tax lens.
- A CBIC clarification or Supreme Court ruling is needed to settle this.
Expert View: Compliance Caution for Insurers and Dealers
According to indirect tax experts:
“Where there’s no contractual obligation to provide free benefits, and if incentives are voluntarily paid, ITC is highly disputable.”
Tip:
Businesses must document incentive structures properly — especially if they intend to claim ITC.
Key Takeaways for Taxpayers
- If you’re paying commissions, classify them carefully.
- Don’t assume all expenses are ITC-eligible — especially marketing, gifting, and incentives.
- Use advance rulings or legal vetting when stakes are high.
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FAQ: ICICI Lombard GST Case
Q1. Is this ₹1,728 crore reprieve a permanent relief?
No. It’s a temporary stay. The final verdict will come after full legal hearing.
Q2. Can input tax credit be claimed on marketing or commission expenses?
Only if it directly relates to taxable supplies and is not hit by Section 17(5). Each case must be judged on facts.
Q3. What happens if the HC rules against ICICI Lombard?
They may need to pay the full tax, interest, and penalty. An appeal to the Supreme Court may follow.
Summary
ICICI Lombard received interim relief from Bombay HC on a ₹1,728.86 crore GST demand over ITC claims on dealer commissions. The case questions whether such incentives are eligible business expenses or blocked under Section 17(5) of CGST Act. A key issue for insurers and tax consultants.