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Infosys says Karnataka authorities have withdrawn GST tax notice

Infosys says Karnataka authorities have withdrawn GST tax notice

Infosys on Wednesday said the Karnataka GST authorities had slapped a Rs 32,403 crore notice for services availed by the company from its overseas branches for five years starting 2017

Business Today Desk
Business Today Desk
  • Updated Aug 1, 2024 10:16 PM IST
Infosys says Karnataka authorities have withdrawn GST tax notice Infosys on Wednesday said it believes the GST is not applicable to these expenses

India's second-largest IT services company Infosys has informed that it has received a communication from the Karnataka State Authorities, withdrawing the 'pre-show cause' notice. The authorities have directed the IT firm to submit a further response to the DGGI (Directorate General of GST Intelligence) central authority on this matter, Infosys said in an exchange filing on Thursday.  

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This comes just a day after the Bengaluru headquartered IT firm said the Karnataka GST authorities had slapped a Rs 32,403 crore notice for services availed by the company from its overseas branches for five years starting 2017. The IT firm said it believes the GST is not applicable to these expenses.

"...the Company has also received a pre-show cause notice from Director General of GST Intelligence on the same matter and the Company is in the process of responding to the same," the filing said. 

"Additionally, as per a recent Circular...issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to Indian entity are not subject to GST," Infosys said. 

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Infosys argued that GST payments are eligible for credit or refund against the 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 company contended.

As per reports, the document sent to Infosys by GST authorities says: "In lieu of receipt of supplies from overseas branch offices, the Company has paid consideration to the branch offices in the form of overseas branch expense. Hence, M/s Infosys Ltd, Bengaluru is liable to pay IGST under reverse charge mechanism on supplies received from branches located outside India to the tune of Rs 32,403.46 crores for the period 2017-18 (July 2017 onwards) to 2021-22." 

The Directorate General of GST Intelligence in Bengaluru believes Infosys did not pay the Integrated-GST (IGST) on the import of services as a recipient of services. It alleges that Infosys set up branch offices outside India and included the expenses it incurred towards these as part of its export invoice.

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The Rs 32,403 crore tax demand is more than a year's profit for Infosys. For the June quarter, Infosys' net profit rose 7.1 per cent year-on-year to Rs 6,368 crore, and revenue from operations stood at Rs 39,315 crore, an increase of 3.6 per cent from a year ago. T

Apex IT body Nasscom has defended Infosys, saying tax demand reflects a lack of understanding of the industry's operating model. In a detailed statement, Nasscom asserted that government circulars issued based on recommendations of the GST Council must be honoured in enforcement mechanisms so that notices do not create uncertainty and negatively impact perceptions on India's ease of doing business.

"Recent media reports of a GST demand of over Rs 320 billion (Rs 32,403 crore) reflects a lack of understanding of the industry's operating model. This is an industry-wide issue, and multiple companies are facing avoidable litigation, uncertainty, and concerns from investors and customers," the IT body said without naming Infosys. 

Nasscom argued that the GST enforcement authorities have been issuing notices for remittance by the Indian head office to its foreign branches for cases where there is no service between the head office and foreign branch for this RCM, ignoring that this is not a case of 'import of service' by the head office from the branch.

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"This is not a new problem, and courts have been ruling in favour of the industry in these cases. This issue was even addressed during the erstwhile service tax law, where favourable judgments were delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)," Nasscom said.

(With inputs from PTI)

 

Published on: Aug 1, 2024 9:55 PM IST
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