Investigation has shown that the wrongful use of tax credit amounted to ₹824 crore, of which ₹217 crore has been 'voluntarily' paid by companies after the probe agency's detection, the ministry said.

"During the course of investigations, it has come to notice that these insurance companies have availed input tax credit on the basis of invoices issued by several intermediaries for providing services of advertising, marketing, brand activation etc., whereas no such services had actually been provided. Thus, in the absence of any underlying supply, the input tax credit availed by the said insurance companies, is not permissible under the GST law," the ministry stated.

A person informed about the investigation said that companies made the 'voluntary' payment under section 74(5) of CGST Act. This section allows an assessee to make tax payment on his ascertainment of what the tax officials have found to be payable. Such payment saves the assessee from being issued a notice.

The ministry did not name any company in its statement but the person quoted above said that some large players are covered under the probe. However, an industry executive said that the extent of tax irregularity involved of ₹824 crore by 16 entities meant that individual cases were small and that tax disputes arising from interpretational issues were common in many sectors.

Input tax credit has been a major area of headache for both policy makers and businesses. While the authorities find it hard to let businesses claim tax credits for their purchases when the seller who collected taxes from them has not remitted into the exchequor, buyers complain that since they have paid the price inclusive of indirect tax, they are eligible for the tax credit. Policy makers assert that businesses should only source goods and services from honest vendors.