BENGALURU: Infosys is under the Directorate General of GST Intelligence (DGGI) scanner for the alleged evasion of over Rs 32,400 crore GST from July 2017 to March 2022 for non-payment of Integrated GST on import of services from overseas branches.
According to an incident report filed by DGGI’s Bangalore zonal unit, Infosys was expected to pay GST under the reverse charge mechanism (RCM), which requires the service recipient to pay the levy.Integrated GST is levied on imports and inter-state movement of goods and services.
In a statement, Infosys contested the allegations, while acknowledging that it had received “pre-show cause notices” from authorities in Karnataka and DGGI. “The company believes that as per regulations, GST is not applicable on these expenses. Additionally, as per a recent circular 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. It is also important to note that the GST payments are eligible for credit or refund against 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.”
DGGI, however, has argued that Infosys services clients from India as well as overseas, for which executives are deployed. Branches are set up outside India in places where the company undertakes projects, as it is required under local laws. These branches provide multiple services – from servicing clients to coordinating with the head office and managing employees.
Citing provisions of the GST law, DGGI is of the view that the branches should be treated as an establishment in foreign countries and should be treated as “distinct persons” from the Indian IT major. As on March 31 this year, Infosys had 28 direct subsidiaries and 63 step-down subsidiaries. Further, the company does not have any material subsidiary.
“… the company was including the expenses incurred towards overseas branches as part of their export invoice from India and basis the said export values, was computing eligible refund. The receipt of export proceeds and export invoice related to project was being raised by the company,” DGGI’s report said.
It also said that all the expenses of the overseas branches were met by Infosys and their services should be treated as services imported by the company.
While further investigations are underway, the issue may land in court, especially with Infosys arguing that it is complying with the law and has already responded to questions raised by GST authorities in Karnataka. It is unclear how other IT companies, which execute contracts for international clients, service them.
According to an incident report filed by DGGI’s Bangalore zonal unit, Infosys was expected to pay GST under the reverse charge mechanism (RCM), which requires the service recipient to pay the levy.Integrated GST is levied on imports and inter-state movement of goods and services.
In a statement, Infosys contested the allegations, while acknowledging that it had received “pre-show cause notices” from authorities in Karnataka and DGGI. “The company believes that as per regulations, GST is not applicable on these expenses. Additionally, as per a recent circular 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. It is also important to note that the GST payments are eligible for credit or refund against 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.”
DGGI, however, has argued that Infosys services clients from India as well as overseas, for which executives are deployed. Branches are set up outside India in places where the company undertakes projects, as it is required under local laws. These branches provide multiple services – from servicing clients to coordinating with the head office and managing employees.
Citing provisions of the GST law, DGGI is of the view that the branches should be treated as an establishment in foreign countries and should be treated as “distinct persons” from the Indian IT major. As on March 31 this year, Infosys had 28 direct subsidiaries and 63 step-down subsidiaries. Further, the company does not have any material subsidiary.
“… the company was including the expenses incurred towards overseas branches as part of their export invoice from India and basis the said export values, was computing eligible refund. The receipt of export proceeds and export invoice related to project was being raised by the company,” DGGI’s report said.
It also said that all the expenses of the overseas branches were met by Infosys and their services should be treated as services imported by the company.
While further investigations are underway, the issue may land in court, especially with Infosys arguing that it is complying with the law and has already responded to questions raised by GST authorities in Karnataka. It is unclear how other IT companies, which execute contracts for international clients, service them.
