Circular, 2024

Text

Reproduced from the document India Code holds for this instrument. The Gazette prints Hindi and English side by side and this is the English; the Department's own PDF remains the authority.

S Cratudar, No- Q4260 (& Office of the Commissioner, State Tax, Uttar Pradesh (GST Section) Letter No. GST/2024-25/ $3 /State Tax Lucknow: Dated: ©$ July, 2024 To, All Zonal Additional Commissioner Grade -1, Additional Commissioner Grade -2 (S.I.B.) State Tax, Uttar Pradesh.

Subject: Clarification on taxability of salvage/ wreck value earmarked in the claim assessment of the damage caused to the motor vehicle -reg.

The insurance companies, which are engaged in providing general insurance services in respect of insurance of motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred by the policyholders. Such damages to the insured vehicle are classified in two categories:

i. Total Loss/ Constructive Total Loss or Cash Loss; and ii. Partial Loss Situation 1.1 Representations have been received from the trade and field formations seeking clarification as to whether in case of motor vehicle insurance, GST is payable by the insurance company on salvage/ wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle.

2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Commissioner, in exercise of its powers conferred by section 168 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “UPGST Act”), hereby clarifies the issues as under: S.No. Issue Clarification \Whether the insurance company is liable to pay GST on the salvage/ wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle? Under GST law, supply is the relevant taxable event for levying tax. For an activity/transaction to be liable to GST, existence of ‘supply’ as defined under section 7 of UPGST Act should be there.

2.1 Section 7 of UPGST Act defines supply to mean ‘all forms of supply of goods or services or both made or agreed to be made Jor a consideration by a person in the course or furtherance of business.” In the instant case, insurance companies are providing service of insuring the vehicle/ automobile for any damages and in return, charging consideration in the form of premium charged from the owner of the vehicle. It is also noted that in respect of insurance services being provided by the insurance companies, it is the responsibility of the insurance company to get the damaged vehicle repaired or to compensate the insured person against the damage caused to the vehicle, to the extent covered under the terms of the insurance.

2.2 Any Deduction made by the insurance company from the final claim amount paid to the insured is in the form of deductibles which is pre-decided and mutually agreed by the insured and the insurer while signing the insurance contract. In cases where as per the policy contract, the insurance company’s Page 2 of 5 liability to pay the insured is limited to Insured’s Declared Value (IDV) of the vehicle less the value of salvage/ wreck in cases of total loss to the vehicle, if the insurance claim is settled by the insurance company as per the terms of the insurance contract by deducting value of salvage/ wreckage from the claim settlement amount, the salvage/ wreckage does not become property of insurance company, and the ownership for such wreckage/ salvage remains with the insured.

However, in some cases, the insurance company may support sourcing of competitive quotes from various salvage/ wreckage buyers and the insured may select the best available offer for sale of wreckage or damaged car.

The insured may also source quotes from open markets and dispose the wreckage or damaged car to such a buyer. In any case, the ownership of the wreckage vests with the insured and not with the insurance company. The same can be disposed by the insured either directly, or through the garage, or may not be disposed at all, as per his wish and choice. The deduction of the value of salvage from the insurance settlement amount, is as per the terms of the insurance contract, and cannot be said to be consideration for any supply being made by insurance company. Accordingly, in such cases, there does not appear to be any supply of salvage by insurance company and as such, there does not appear to be any liability under GST on the part of insurance company in respect of this salvage value.

2.3 However, in situations where the insurance contract provides for settlement of claim on full IDV, without deduction of value of salvage/ wreck, the insured will be paid for full claim amount without any deductions on account of salvage value. In such a situation, the salvage becomes the property of Insurance Company after settling the claim for the full amount and the insurance company is obligated to deal with the same or dispose of the same. In such cases, the outward GST liability on disposal/sale of the salvage is to be discharged by the insurance companies.

3. Therefore, in cases where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as dedLvlctibles from the claim amount, the salvage remains the property of insured and insurance companies are not liable to discharge GST liability on the same.

However, in cases, where the insurance claim is settled on full claim amount, without deduction of value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer.

3. It is requested that suitable trade notices may be issued to publicize the contents of Page 4 of 5 this Circular.

4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Undersigned.

By Order, Commissioner, State Tax, U.P.

Copy To:

1. Joint Commissioner (L.T.), State Tax HQ, Lucknow for uploading the Circular on the Departmental Website.

Joint Commissioner(GST) State Tax HQ, Lucknow.

Provisions this circular answers to

Read out of the instrument itself: an enabling provision is one it says it was made under, which is the power it rests on. The rest it names without resting on.

Other instruments under the same Act

All of the The Uttar Pradesh Goods and Services Tax Act, 2017