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GST authorities issue a ₹32,403 crore notice to Infosys for services availed from its overseas branches, which the company contests, citing regulations.
Key Points
- GST authorities issued a ₹32,403 crore notice to Infosys for services from overseas branches from July 2017 to March 2022.
- Infosys contends that GST is not applicable on these expenses based on current regulations and a recent CBIC circular.
- The notice is more than a year’s profit for Infosys, highlighting the financial impact.
- Infosys manages the GSTN portal, adding significance to the notice.
- The company has responded to the notice and is fully compliant with all GST regulations.
GST authorities have issued a ₹32,403 crore notice to Infosys for services availed from its overseas branches over a five-year period starting in 2017. Infosys, in a stock exchange filing, described the notice as a ‘pre-show cause’ notice and expressed its belief that GST is not applicable on these expenses.
The Bengaluru-headquartered IT firm stated that Karnataka State GST authorities issued the pre-show cause notice for the period from July 2017 to March 2022, addressing the expenses incurred by its overseas branch offices. Infosys has responded to this notice, and the company has also received a similar notice from the Director General of GST Intelligence, to which it is in the process of responding.
According to Infosys, GST regulations do not apply to such expenses. The company cited a recent Circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on the recommendations of the GST Council, which clarified that services provided by overseas branches to an Indian entity are not subject to GST.
Infosys further 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 asserted.
The document sent to Infosys by GST authorities states: “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 ₹32,403.46 crores for the period 2017-18 (July 2017 onwards) to 2021-22.”
The Directorate General of GST Intelligence in Bengaluru believes that Infosys did not pay the Integrated-GST (IGST) on the import of services as a recipient. It alleges that Infosys set up branch offices outside India and included the expenses incurred by these branches as part of its export invoices.
This GST demand, amounting to ₹32,403 crore, is significantly more than a year’s profit for Infosys. For the June quarter, Infosys reported a net profit of ₹6,368 crore, a 7.1% year-on-year increase, with revenue from operations at ₹39,315 crore, up 3.6% from the previous year.
The notice is particularly noteworthy as Infosys manages the Goods and Services Tax Network (GSTN) portal, having secured a ₹1,380 crore contract in 2015 to build the technology platform for GST. As the situation develops, it is expected to draw considerable attention within the industry and from regulatory bodies.
