In a significant development, GST authorities have partially reversed their stance by withdrawing a notice of Rs 3,898 crore issued to tech giant Infosys. This action comes from a larger Goods and Services Tax Pre-Show Cause Notice Incident Report of Rs 32,403 crore raised last week, covering the five-year period starting from 2017-18.
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Infosys disclosed this update to stock exchanges on Saturday, indicating that the Directorate General of GST Intelligence ( DGGI ) communicated the closure of the “pre-show cause notice proceedings for the financial year 2017-2018.”
“The Company had received and responded to a pre-show cause notice issued by DGGI for the period July 2017 to March 2022. The Company has now received a communication from DGGI closing the pre-show cause notice proceedings for the financial year 2017-2018. The GST amount as per the pre-show cause notice for this period was Rs 3,898 crore,” Infosys stated in its filing.
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The current filing does not clarify the status of the tax demand for the remaining years of the five-year period from 2017-18 to 2021-22. However, officials suggest that the notices for these years might also be withdrawn soon, potentially during the adjudication stage.
Last week, the DGGI issued a Rs 32,403 crore notice to Infosys concerning services availed by the company from its overseas branches over five years, starting in 2017. Infosys addressed this issue in a stock exchange filing on Wednesday, referring to the tax department’s notice as a “pre-show cause” and asserting that the GST does not apply to the expenses in question. On Thursday, the Karnataka state GST authority also withdrew its notice, leaving Infosys to respond solely to the DGGI.
The GST probe wing invoked the reverse charge mechanism, which shifts the tax payment responsibility from the seller to the recipient of goods/services. Infosys stated in its exchange filing that GST payments are eligible for credit or refund against the export of IT services.
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Infosys cited a recent circular (number 210/4/2024 dated June 26, 2024) from the Central Board of Indirect Taxes and Customs ( CBIC ) based on GST Council recommendations. The circular clarifies that services provided by overseas branches to an Indian entity are not subject to GST. It stipulates that tax must be paid by the registered person in India under the reverse charge mechanism when importing services from a related person outside India. However, if full input tax credit is available, the value of such services may be deemed as nil if the related domestic entity does not issue an invoice.
This update provides a significant relief to Infosys amidst the ongoing tax dispute, and further developments are awaited as the company continues to engage with GST authorities.
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