New Delhi: Tech giant Infosys is considering contesting the Rs 32,403 crore notice for unpaid Integrated Goods and Services Tax under the reverse charge mechanism for services claimed to have been received from overseas branches, people familiar with the development said.
The company had received a pre-show cause notice from the Bengaluru branch of the Directorate General of GST Intelligence (DGGI). It is yet to respond to the latest notice.
Tax officials said the notice sent to Infosys was a pre-show cause notice sent as per the provisions under the existing law and the company is still free to respond, explain, and contest the notice.
“It is a pre-show cause notice sent and the company will get enough time to respond to the notice, explain its position, and contest it,” a senior official told ET.
The mail sent to Infosys remained unanswered till the time of going to the press.
The notice was sent for the period from July 2017 to 2021-2022 saying that the company did not pay IGST on services received from overseas branches under RCM.
“As per the IGST law, services provided by the overseas branches are considered imports, according to Section 2(11) of the IGST Act, 2017, and require companies to pay tax under the RCM mechanism,” the official explained. The RCM system mandates that the recipient of goods or services, rather than the supplier, pays the tax.
The official said the GST council had issued clarifications in the case of overseas branches of banks, but it is specific to the sector and not generic.
The industry maintains that there was no import of service and consumption of service taking place in the destination country, thus tax liability did not arise. An industry expert said tax authorities need to appreciate that the model has been followed by the entire industry since service tax days.
“Recent media reports of a GST demand of over Rs 320 billion 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,” industry body Nasscom said in a statement.
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