Page 7 - Chap1 Charge of Tax & Concept of Supply

discharge the entire GST liability on the full amount of premium received from Gyaati Industries.
2. A large industrial plant needs an insurance worth ₹ 500 crore. It approaches ABC Insurance Ltd. for the
same. However, since ABC Insurance Ltd. is unable to underwrite the entire risk alone, it enters into a
reinsurance agreement with a reinsurer - PQR Insurance Ltd. The total premium charged is ₹ 50 lakh. The
insurer - ABC Insurance Ltd. pays a reinsurance premium of ₹ 20 lakh to PQR Insurance Ltd. This allows
ABC Insurance Ltd. to manage its risk and financial exposure. While paying this amount to PQR Insurance
Ltd., ABC Insurance Ltd. deducts a ceding commission of ₹ 1,00,000 which it has charged for the services it
provides to PQR Insurance Ltd. PQR Insurance Ltd. pays GST on the gross reinsurance premium
including the ceding commission.
Based on the provisions of Schedule III of the CGST Act, 2017, discuss whether the following activities amount
to supply:
(a) Apportionment of co-insurance premium by ABC Insurance Ltd. to XYZ Insurance Ltd. for the insurance
services jointly supplied by them to Gyaati Industries.
(b) Services by ABC Insurance Ltd. to PQR Insurance Ltd. for which ceding commission is deducted from
reinsurance premium paid by ABC Insurance Ltd. to PQR Insurance Ltd. [CA Final RTP Sep 25]
Answer:

Legal Provision: Activity of apportionment of co-insurance premium by the lead insurer to the co-insurer
1.
for the insurance services jointly supplied by the lead insurer and the co-insurer to the insured is neither
supply of goods nor supply of services if lead insurer paid GST on entire premium and hence no GST is
charged on the apportionment transaction. [Para 9 of Schedule III]
Conclusion:
Ü The lead insurer (ABC Insurance Ltd.) is required to pay the entire GST (CGST and SGST or IGST, as
applicable) on the full premium amount paid by the insured – Gyati Industries, of ₹ 50,00,000.
Ü The co-insurer, XYZ Insurance Ltd. does not pay GST on its share of the premium separately.
Legal Provision: Services by insurer to the reinsurer for which ceding commission or the reinsurance
2.
commission is deducted from reinsurance premium paid by the insurer to the reinsurer is neither supply of
goods nor supply of services, subject to the condition that the GST is paid by the reinsurer on the gross
reinsurance premium payable by the insurer to the reinsurer, inclusive of the said commission. [Para 10 of
Schedule III]
Conclusion: In the given case, the reinsurer (PQR Reinsurers Ltd.) is liable to pay GST on the gross
reinsurance premium payable by the insurer (₹ 20 lakh), inclusive of the ceding commission (₹ 1 lakh).

05. Section 7(1A) & 7(3) read with Schedule II:- Activities to be treated as supply of goods or supply of
services (Classification as ‘supply of goods' or 'supply of services')

Q.9: XYZ Consultancy, registered in Bangalore, supplies technical consultancy services to its clients. It has
been providing technical services to BA Ltd., Mumbai since past 2 years. Consideration is settled by BA Ltd.
assignment-wise. BA Ltd. paid ` 37 lakh to XYZ Consultancy on 10th January for XYZ Consultancy
agreeing not to provide similar technical services to any other business entity in India or abroad for a period
of next 8 years. XYZ Consultancy is of the view that ` 37 lakh is not chargeable to tax under GST law.
You are required to examine whether the view taken by XYZ Consultancy is valid in law. It may be noted
that BA Ltd. is not ready to pay any further amount to XYZ Consultancy in addition to the amount already
agreed. [Study Mat]
Answer:-
Ü The view taken by XYZ Consultancy is incorrect.
Ü In given case, XYZ Consultancy is providing the service of agreeing to the obligation to refrain from an act
to BA Ltd. against a consideration of ` 37 lakh [Schedule II read with CBIC clarification].
Ü Therefore, the same is liable to tax under GST law.

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