The Bombay High Court on Friday stayed GST demands exceeding Rs 10,000 crore raised against 13 insurance companies over co-insurance premiums and ceding commissions.
While granting interim relief, the court observed that CBIC circulars issued pursuant to recommendations of the GST Council clearly exclude such transactions from the scope of GST, making the tax demands prima facie unsustainable.
Insurance Companies Challenge GST Classification
The petitions were filed by several insurers, including Aditya Birla Health Insurance, SBI General Insurance Company, Oriental Insurance and others, after tax authorities issued demands alleging incorrect classification of certain insurance-related transactions under GST.
The insurers argued that co-insurance arrangements and ceding commissions are expressly exempted under CBIC circulars and therefore cannot be subjected to GST. The High Court found this contention persuasive at the interim stage.
Notably, the petitioners pointed out that identical GST demands had already been dropped by departmental authorities in Meerut, Delhi, Pune and Mumbai, in line with the same CBIC circulars.
Court Emphasises Binding Nature of CBIC Circulars
Granting the stay, the court underlined that administrative circulars issued by the CBIC cannot be disregarded during assessment proceedings, especially when they are based on GST Council recommendations.
Tax experts say the ruling provides immediate financial relief to insurers by safeguarding cash flows while reinforcing the need for uniform and consistent implementation of GST circulars across jurisdictions.
"The order reinforces that circular-based guidance cannot be ignored in assessments," a tax expert said, adding that the broader legal issue will now be examined on the merits.
The matter is scheduled for further hearing on February 18.
What Are Co-Insurance and Ceding Commissions?
- Co-insurance involves multiple insurers sharing the risk of an insurance policy.
- A ceding commission is paid by a reinsurer to the insurer that transfers part of the risk.
Both mechanisms are standard risk-management practices in the insurance industry and have long been treated as non-taxable under GST circulars.
Related GST Relief: Mad Over Donuts Case
The insurance sector relief comes a day after the Bombay High Court extended interim protection to Himesh Foods, operator of the Mad Over Donuts chain in India, against a GST demand of Rs 57.29 crore.
The Directorate General of GST Intelligence (DGGI) had alleged that over-the-counter donut sales could not be classified as restaurant services, making them taxable at 18% GST instead of the 5% rate applied by the company. The court stayed the demand and related penalties pending further examination.
Broader Implications
Legal experts believe these developments signal increasing judicial scrutiny of aggressive GST classifications and enforcement actions, particularly where departmental demands contradict GST Council-backed circulars.
For now, the High Court’s interim orders offer much-needed clarity and relief to businesses facing large GST demands based on disputed interpretations.
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