Infosys Disputes Rs 32,403 Cr GST Demand, Maintains Dues Paid
Karnataka State GST authorities had issued a pre-show cause notice for the payment of GST related to expenses incurred by its overseas branch offices
India’s second-largest IT services company Infosys is grappling with a GST demand amounting to Rs 32,403 crore. The demand pertains to services availed by Infosys from its overseas branches over a five-year period starting in 2017.
The tax authorities have determined that Infosys paid consideration to its overseas branches through expenses, making it liable for IGST under the Reverse Charge Mechanism (RCM). The RCM mandates that the recipient of goods or services, rather than the supplier, pays the tax, resulting in a significant liability from July 2017 to the 2021-22 fiscal year.
In response to the tax demand, Infosys issued a statement clarifying that Karnataka State GST authorities had issued a pre-show cause notice for the payment of GST related to expenses incurred by its overseas branch offices. Infosys stated that it has responded to this notice and subsequently received a similar pre-show cause notice from the Directorate General of GST Intelligence, to which it is also responding.
Infosys maintained that GST is not applicable to these expenses according to current regulations. The company cited a recent circular (number 210/4/2024 dated June 26, 2024) issued by the Central Board of Indirect Taxes and Customs, which clarified that services provided by overseas branches to the Indian entity are not subject to GST.
Additionally, Infosys mentioned that GST payments are eligible for credit or refund against the export of IT services. The company reiterated that it has paid all its GST dues and is fully compliant with both central and state regulations on this matter.
“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 Indian entity are not subject to GST,” Infosys said in a regulatory filing.
Former Infosys CFO Mohandas Pai criticised the tax notice, describing it as an example of "tax terrorism at its worst" and stressing that service exports from India are not subject to GST.
This incident follows a previous fine in April when the Odisha GST Authority penalised Infosys Rs 1.46 lakh for availing ineligible input tax credit.
