Treatment of GST amount in Marine insurance Cargo Claims: 

 There exists lot of confusion among the Insurance Loss Adjusters and brokers who generally guide the insured in case of loss of goods during marine transits. 

  FIRE INSURANCE CLAIMS: 

 A clear understanding of applicable provisions of Goods and Services Tax (GST) law while assessing loss in case of a Fire or Burglary Insurance Policy has been explained by CMA Mr. Shiba Prasad Padhi Cost Accountant in MAY, 2022 VOLUME - 111 - THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

 “When there is a loss of stock or capital goods and the Insured lodges his claim with the Underwriter, the gross loss amount so claimed by the Insured is inclusive of GST paid. Tax cost is also to be indemnified to an Insured in case the liability falls on the Insured. As per provision of Sec. 17 (5) (h) of the Central GST Act, 2017, ITC will not be available to a taxable person in case the goods are lost or destroyed or stolen or they are written off. An Insured who has already availed ITC after purchase of stock or capital goods should not be paid the GST amount unless the Insured makes a reversal of the same in the above situation”. 

“Recommendation as per GST & Indirect Taxes Committee, The Institute of Chartered Accountants of India First Edition: July, 2021- Practical FAQs on Input Tax Credit.Page:187: 

“In case of flood claims, fire claims or theft claims w.r.t. damaged/ stolen stocks--------- Generally, the insurance company will indemnify the insured with the value of stock before the loss. Suppose taxable value of stock is ` 100/- and GST charged is ` 18/- the insured would have taken ITC of ` 18/-. However, as per section 17(5)(h) (goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples) the insured is required to reverse the ITC of ` 18/-. Since ITC is not eligible as per above provision, the same becomes cost of the stock lost. Hence, total loss of stock is ` 118/- and the insurance company has to compensate ` 118/-. However, the insurance company may want to ensure whether ITC involved in the loss of stock has been reversed so as to validate the exact value of loss of stock. For this purpose, the insurance company requires the insured to get CA certificate confirming that ITC has been reversed in the books and GST returns though there is no express requirement for the insured to get CA certificate as per the CGST Act, 2017 or rules made thereunder. (ii) From the above discussion, the procedure adopted by insured and insurance company appears to be proper to arrive at the value of loss of stock. However, the insured has to pay interest under section 50, in this matter, since he reverses the credit belatedly that too after being pointed out by the Department. The Department may also levy penalty under section 73 or 74”. 

  MARINE CARGO INSURANCE CLAIMS:

Whenever a total loss occurs, the policy holders irrespective of their roles as supplier or receiver tries to pass the burden of GST on to the Insurer. 

The ICC /ITC policy coverage is generally for Invoice value (which is inclusive of GST) +10%.. 

If the loss happens during supply phase of transit, the supplier of the goods/ insured brings back the goods in his premises; declares the consignment as total loss and makes a claim for Invoice (inclusive of GST) amount +10%, citing Sec. 17 (5) (h) of the Central GST Act, 2017. 

The same is also the norm, If the receiver is the insured who has an insurable interest in the shipment. 

 The following guide line prepared by Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS www.cbec.gov.in may be helpful for Loss assessors as well as Insurance Company for guiding the Insured in case of Marine Cargo losses. 

 Reference Document: “Credit Note in GST, Prepared by: National Academy of Customs, Indirect Taxes & Narcotics” may be immensely helpful for GST related issues in marine claims for both insurer and the insured. 

Following two paragraphs of the above document are worth noting: 

Introduction

" A supplier of goods or services or both is mandatorily required to issue a tax invoice. However, during the course of trade or commerce, after the invoice has been issued there could be situations like: 

• The supplier has erroneously declared a value which is more than the actual value of the goods or services provided. 

• The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods or services or both supplied. 

• The quantity received by the recipient is less than what has been declared in the tax invoice. 

• The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby necessitating a partial or total reimbursement on the invoice value.

• Any other similar reasons. In order to regularize these kinds of situations the supplier is allowed to issue what is called as credit note to the recipient. Once the credit note has been issued, the tax liability of the supplier will reduce. 

Conclusion 

The credit note is therefore a convenient and legal method by which the value of the goods or services in the original tax invoice can be amended or revised. The issuance of the credit note will easily allow the supplier to decrease his tax liability in his returns requiring him to undertake any tedious process of refunds” 

 Declaration and Disclaimer: 

The above view is very much personal based on my understanding of the GST Law and Insurance framework for loss assessment in case of Marine Cargo Insurance Policy. 

The Opinion is personal and not binding on any one. 

Sekhar Sengupta (ssg.noida@gmail.com)

Qualified IBBI Plant & Machinery Valuer 

Qualified Fire, Marine & Engineering Surveyor