ICICI prudential gets over Rs 130 crore tax notice

The Finance Ministry has asked private sector insurer ICICI Prudential to cough up over Rs 130 crore for alleged evasion through non-payment of service tax.

The Directorate General of Central Excise Intelligence (DGCEI) has issued a show-cause-cum-demand-notice recently to the firm alleging irregularities including fudging records of commission paid to field agents or channel partners in lieu of policies being sold by them among others, official sources said.

Officials of the DGCEI, an investigative arm of Revenue Department under the Ministry, verified the accounts book of the company for the last five years--2007-08 to 2011-12—and claimed to have found irregularities vis-a-vis adherence to service tax laws.

The officials found non-payment of appropriate service tax on the commission paid to their channel partners for the generation of life insurance business and collection of service tax from their corporate agents without any authority in law and not depositing the same to the government nexchequer, they said.

"The DGCEI has raised a demand for payment of about Rs 136 crore on account of alleged service tax evasion to ICICI prudential," a source said. An ICICI Prudential spokesperson said the company will respond to the notice issued to it.

"The department has followed procedure by issuing the showcause notice. We will respond to the notice within the stipulated time period," an official company spokesperson told PTI in an email response.

The officials alleged that the company was paying huge sums of money to their channel partners under different heads in lieu of commission, thereby not paying service tax on the correct amount paid.

In some instances, up to 80 per cent of the premium paid by the unsuspecting customers was given to the channel partners as commission for the sale of life insurance products in gross violation of Insurance Regulatory and Development

Authority (IRDA) norms.The DGCEI, which began probe last year to unearth alleged service tax evasion by various life insurance firms, is likely to issue show-cause-cum-demand notices to other firms also, the sources said. Investigations have found alleged service tax evasion of at least Rs 300 crore by private sector life insurance companies.

The insurance companies under probe are found to be allegedly maintaining wrong data of commission paid and not paying service tax being deducted from their corporate agents, they said.

All life insurance companies are required to pay service tax at the rate of 12.36 per cent on the total commission paid to the corporate agents and the individual agents under the reverse charge mechanism, where as brokers and referrals are individually liable to pay service tax at the rate of 12.36 per cent on the commission amount received from the insurance companies.

At present, there are 24 general insurance companies including the Export Credit Guarantee Corporation (ECGC) and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country.

Govt's disinvestment lifeline LIC sees opportunity in market rout

Insurance behemoth Life Insurance Corporation (LIC) has stepped up the purchase of equities at a time when foreign institutional investors have been hitting the sell button. The state-owned insurer has bought equities worth Rs. 2,500-3,000 crore over the last seven days, sources close to the development told FE.

LIC’s buying accounts for more than half the R5,034 crore in equities bought by domestic institutional investors over the same period, according to Securities and Exchange Board of India data.

“LIC’s investment policy has been to buy when low, sell when high. This was certainly a good opportunity to buy good quality and quantity of stocks at a discount,” said a senior official at LIC, adding that in the wake of the recent market crash, blue-chip stocks were available at attractive valuations. Officials declined to offer insights into specific stocks that LIC may have bought into.

Interestingly, LIC’s pace of equity purchases in the last seven days is equivalent to what the life insurer typically buys over a month. In an interview to FE earlier this year, then-chairman DK Mehrotra had explained that LIC will target to invest R2.25-3 lakh crore by March 2014.

“Of that, about 10%, or about R25,000-30,000 crore, should go to equity,” Mehrotra had said. This would mean the insurer’s monthly equity investment budget would generally not exceed R2,500 crore.

In the past, the government has relied on the insurer to buy stocks when the markets were weak. LIC has also been a significant participant in recent public sector divestment issues such as MMTC where LIC reportedly picked up 25-30% of the issue by committing R200-250 crore.

However, very few of those investments are deemed profitable. As per stock exchange disclosures, Capitaline data and estimates from market sources, LIC is estimated to be sitting on a mark-to-market (MTM) loss of around R215 crore, having invested nearly R4,820 crore in the divestment offerings of FY13 that saw the government raise R23,778 crore.

All seven companies — Hindustan Copper, NMDC, Oil India, NTPC, Rashtriya Chemicals and Fertilizers, Nalco, and SAIL — in which LIC acquired a stake are trading below their respective floor prices.

Over the last one week, the capital markets have seen a steep sell-off due to heavy selling by foreign institutional investors after the US Federal Reserve announced a planned tapering off of its quantitative easing programme. For the week, the Sensex closed 2.1% lower while the Nifty ended 2.4% lower.

However, individual stocks have seen a far steeper sell-off, potentially presenting a good opportunity for long-term investors to buy.

Nifty stocks that have seen significant price falls this week include Bank of Baroda (13.3%), Punjab National Bank (10%), Hindalco (9.3%), NTPC (6%) and ICICI Bank (5%).