GST authorities reviewing Infosys’ response to Rs 32,403 crore tax claim

The GST authorities are reviewing the response of IT major Infosys on the Rs 32,403 crore pre-show cause notice issued to the company for services availed from its overseas branches over five years from 2017.

This review stems from a June 26 policy circular which clarifies the valuation of services provided by foreign affiliates to related domestic entities in India, especially when the domestic entity qualifies for full input tax credit.

According to the circular, the value declared in an invoice issued by a foreign affiliate for services is considered the open market value. If no invoice is issued, the service value is deemed to be zero, which is also treated as the open market value under the second provision to rule 28(1) of the CGST Rules.

The Directorate General of GST Intelligence (DGGI) issued a Rs 32,403-crore notice to Infosys for services availed from its overseas branches over five years from 2017.

In its response on the Directorate General of GST Intelligence notice, Infosys has asserted compliance with all relevant tax regulations and confirmed paying the necessary taxes. The company referenced the recent circular, stating that GST does not apply to expenses for services provided by its overseas branches to the Indian entity.

The GST probe wing has invoked the reverse charge mechanism, where the recipient of services, rather than the provider, is responsible for tax payment.

This review can benefit Infosys by potentially resolving ambiguities regarding GST applicability on intra-company services.

As per sources, there is also prospective protection from retrospective tax demands under Section 11A of the CGST Act, which, once approved by Parliament, would provide a legal framework for resolving such disputes.