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Circular No.-215/9/2024-GST
F.No. CBIC-20001/4/2024-GST
Government of India
Ministry of Finance
(Department of Revenue)
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
North Block, New Delhi
Dated the 26th June, 2024
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
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 Board, in exercise of its powers conferred
by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to
as “CGST Act”), hereby clarifies the issues as under:
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S.No.
Issue
Clarification
1.
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 CGST
Act should be there.
2.1
Section 7 of CGST Act defines supply to mean ‘all
forms of supply of goods or services or both made or
agreed to be made for 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 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
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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 amountand 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
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3. It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
4. Difficulty, if any, in implementation of this Circular may please be brought to the
notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
mentioned in the contract itself, general insurance
companies are deducting the value of salvage as deductibles
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.
