GST authorities have issued a notice amounting to Rs 32,403 crore to Infosys for services utilized by the company from its overseas branches over a five-year period starting in 2017.
In a filing to the stock exchange, Infosys referred to the notice as a ‘pre-show cause’ notice and asserted that GST does not apply to these expenses.
The Bengaluru-based IT giant stated that the Karnataka State GST authorities have sent a pre-show cause notice demanding GST payment of Rs 32,403 crore for the period from July 2017 to March 2022, related to expenses incurred by Infosys’ overseas branches. The company has already responded to this notice.
Additionally, Infosys revealed that it received a similar pre-show cause notice from the Director General of GST Intelligence, to which it is currently preparing a response.
According to Infosys, the applicable regulations indicate that GST should not be levied on such expenses. The company cited a recent circular from the Central Board of Indirect Taxes and Customs, which, based on GST Council recommendations, clarifies that services provided by overseas branches to Indian entities are exempt from GST.
Infosys further argued that GST payments are eligible for credit or refund when offset against the export of IT services.
The company emphasized its compliance with all central and state GST regulations and affirmed that it has paid all its GST dues.
According to reports, the GST authorities' document to Infosys stated: "In exchange for receiving supplies from overseas branch offices, the Company has compensated the branch offices through overseas branch expenses. Therefore, M/s Infosys Ltd, Bengaluru, is liable to pay IGST under the reverse charge mechanism on supplies received from branches outside India, amounting to Rs 32,403.46 crore for the period from July 2017 to March 2022."
The Directorate General of GST Intelligence in Bengaluru contends that Infosys did not pay the Integrated-GST (IGST) on imported services as a recipient and included the expenses of its overseas branches in its export invoices.
The demand, a staggering Rs 32,403 crore, surpasses Infosys’ annual profit. In the June quarter, Infosys reported a 7.1 percent year-on-year increase in net profit to Rs 6,368 crore, with revenue from operations rising 3.6 percent to Rs 39,315 crore.
This GST demand is particularly noteworthy as Infosys manages the Goods and Services Tax Network (GSTN) portal. In 2015, Infosys secured a Rs 1,380 crore contract to develop the technology platform for the Goods and Services Tax (GST).
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