Infosys slapped with Rs 32,403 crore GST demand notice, says it has paid all dues

In its notice, the GST probe wing has invoked reverse charge mechanism, where the recipient of goods/services assumes the responsibility for tax payment, instead of the seller. The Directorate General of GST Intelligence (DGGI) has slapped a Rs 32,403-crore notice on Infosys for services availed by the company from its overseas branches over a five-year period starting 2017.

The IT company said the Karnataka State GST authorities have issued a pre-show cause notice for payment of GST of Rs 32,403 crore for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited, and added that it has responded to the pre-show cause notice.

“…the Company has also received a pre-show cause notice from the Director General of GST Intelligence on the same matter and the Company is in the process of responding to the same,” the filing stated. The company believes that as per regulations, GST is not applicable on such expenses. The DGGI is the intelligence and investigative agency for matters relating to violation of the Goods & Services Tax, Central Excise Duty and Service Tax.

“The Company believes that, as per regulations, GST is not applicable on these expenses. Additionally, as per a recent Circular (circular number 210/4/2024 dated June 26, 2024) issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to the Indian entity are not subject to GST,” Infosys said.

In its notice, the GST probe wing has invoked reverse charge mechanism, where the recipient of goods/services assumes the responsibility for tax payment, instead of the seller. A detailed query sent to the DGGI did not elicit a response.

In its exchange filing, Infosys said GST payments are eligible for credit or refund against export of IT services. “Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter.”

The particular circular referred to by the company (No.210/4/2024) issued in June, while flagging the case of import of services by a registered person in India from a related person located outside India, stipulates that “the tax is required to be paid by the registered person in India under reverse charge mechanism”.

While noting that in such cases, the registered person in India is required to issue self-invoice under Section 31(3)(f) of CGST Act and pay tax on reverse charge basis, the circular then goes on to clarify that “…in cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is available to the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules.”

“Further, in cases where full input tax credit is available to the recipient, if the invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules,” the circular stated.