Infosys Faces GST Scrutiny, Receives Notice for Rs32,403 Crore

Moneylife Digital Team 01 August 2024

Economy & Nation

Infosys Ltd, India's second-largest IT firm, has come under the spotlight following a pre-show-cause notice (SCN) from the Karnataka state goods and services tax (GST) authorities. The notice pertains to alleged non-payment of integrated GST (IGST) amounting to Rs32,403 crore between July 2017 and March 2022. While acknowledging receipt of the pre-SCN, Infosys says it has responded to the Karnataka state GST authorities.

The directorate general of GST intelligence (DGGI) is investigating Infosys for potential tax evasion related to expenses incurred by the company's overseas branch offices. According to the DGGI, Infosys has received services from these branches without paying IGST under the reverse charge mechanism on import services.

The crux of the issue lies in the interpretation of the IGST Act 2017. The DGGI contends that Infosys' overseas branches, established for on-site project work, are considered distinct entities under the Act. Consequently, transactions between Infosys and these branches should be subject to IGST.

Furthermore, the investigation revealed that Infosys had included expenses incurred by overseas branches in their export invoices from India. Based on these export values, the company was computing eligible refunds. The DGGI argues that by paying for overseas branch expenses, Infosys is effectively receiving supplies from these branches and should, therefore, be liable for IGST under the reverse charge mechanism.

In response to the notice and subsequent news articles, Infosys has issued a statement to the stock exchange. The company acknowledges receiving the pre-SCN and states that it has responded to the Karnataka state GST authorities. Additionally, Infosys confirmed receipt of a similar notice from the DGGI to which it is, currently, preparing a response.

Infosys maintains its position that GST is not applicable to these expenses according to current regulations. The company cites a recent circular (number 210/4/2024 dated 26 June 2024) issued by the central board of indirect taxes and customs (CBIC) which states that services provided by overseas branches to Indian entities are not subject to GST.

The IT giant emphasises that it has paid all its GST dues and is fully compliant with Central and state regulations. Infosys also notes that any GST payments related to this matter would be eligible for credit or refund against the export of IT services.

As this situation unfolds, it highlights the complexities of international business operations and tax regulations in the ever-evolving IT sector. The outcome of this case could have significant implications for other multinational companies operating with similar structures.

Comments

User

s5rwav

11 months ago

Considering the reported past period of nonpayment of IGST by Infosys, this IT Giant may Lose the Legal Case as 2024 Circular cannot be applicable to that period.

angelo.extross

11 months ago

By ignoring the CBCI circular of 26th June 2024, the Karnataka State GST and DGGI authorities appear to have suffered a basic disconnect. How do they justify their actions?