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30 Apr 2016

No Reverse charge on Insurance Agents for finalising deals with reinsurers

Recently, Hon’ble CESTAT of New Delhi in the matter of Oriental Insurance Company Ltd. v. Commissioner of Central Excise & Commissioner of Service Tax (2016) 67 taxmann.com 376(New Delhi-CESTAT), held that reverse charge would not be applicable on the commission paid to agents helping merely in finalising deals with “reinsurers”.

In the said case, department demanded the Service tax liability under reverse charge on brokerage/ commission paid to agents for finalising deals with reinsurer treating it as insurance agent’s service. The Appellant has pleaded that such agents would not come in the category of Insurance agents as defined in rule 2(1)(cba) of Service Tax Rules, 1994 read with section 2(10) of the Insurance Act, 1938 as they were not soliciting or procuring insurance business, instead they were only engaged to help out in finalising deals with reinsurers.

Affirming the contentions of appellant, Honorable CESTAT-New Delhi decided the case in favour of the assessee and ruled out that services received from agents merely helping in reinsurance deals would be considered as services received from insurance intermediaries and not from insurance agents; hence reverse charge provisions would not apply on services provided by them.