Infosys officially said that the Karnataka State Authorities have withdrawn the notice called ‘pre-show cause’ as preferred by the second largest IT services company of India, Infosys. Infosys recently received directions from the authorities to give an additional response to the DGGI on this issue, according to the exchange filing on Thursday. 

This came barely a day after the Bengaluru-based IT firm announced it had been served a Rs 32,403 crore notice from the Karnataka GST authorities. The notice applied to services obtained from its overseas branches in a period stretching for over five years, specifically starting from 2017. Infosys procured a legal opinion that opines that GST is not leviable on such expenses. 

The company said in a statement, “Infosys has also received a pre-show cause notice from the director general GMO of GST Intelligence concerning the same matter and is in the process of its reply. ” 

Further, Infosys cited Circular recently No. 39/2018 dated August 13, 2018, issued by the Central Board of Indirect Taxes and Customs in terms of the GST Council. The circular clears the doubt stating that services supplied by overseas branches to an Indian entity are not subjected to GST. 

Infosys also goes on to say that GST payments may be claimed as a credit or a refund for exported IT services. In their response, the company was keen to point out it has paid its GST obligations and complies with both the central and state legislations. 

Some of the findings were that the document from GST authorities to Infosys mentioned that it was revealed the company reimbursed its overseas branches for the supplies it got from them by categorizing such payments in branch office expenses. Therefore, under section 5 of the IGST Act, 2017, Infosys is required to pay the IGST under the reverse charge mechanism in respect of supply received from its foreign branches to the tune of Rs 32,403/-therefore. 46 crores for the year from July 2017 to up to the year 2021-22.

The Directorate General of GST Intelligence in Bengaluru argues that Infosys incurred several and failed to pay the Integrated GST (IGST) on imported services as the recipient. The allegation also consists of statements that Infosys opened its branch offices beyond India and charged these costs on export bills. 

Pailing this tax demand at Rs 32,403 crore, it was close to a year’s profit of Infosys. Accordingly, for the June quarter, the net profit of Infosys which is an IT-based company had increased by 7%. 1% when compared to the previous year, its revenue from operations for the year ended March 2020 was Rs 39,315 crore. , 6 % from the previous year. 

Nasscom, the apex IT body in New Delhi stood up for Infosys and contended that it has never been the industry’s modus operandi to avoid taxes and the tax demand was thus a misinterpretation of its business model. In its detailed statement, Nasscom said that all the government circulars and notifications that emanate from the recommendation made by the GST Council must be honored to avoid the unnecessary unwarranted, and adverse consequences of unwanted complexity and unfavourable impacts on India Incorporated’s ranking on doing business. 

Nasscom said that recent GST demand exceeding 320 billion rupees (Rs 32,403 crore is absurd and highlights the lack of understanding of the industry’s operation model The problem affects many businesses and may have otherwise saved litigation, uncertainty and worry amongst investors and customers. 

Further, the IT body also asserted that the authentic GST enforcement authorities have issued notice for remittances from the Indian head office to its branch overseas where there is no service for this **RCM** between the Indian HO and its branch abroad. In respect of the head office, Nasscom insisted that it is not ‘bringing in services’ from the branch in this specific case. 

‘’This matter is not new, and in many cases, the courts have sided with the industry on this issue. During the erstwhile service tax law, similar issues were dealt with by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT),” Nasscom added. 

Infosys, one of the biggest firms in the IT industry, still faces challenges in multiple jurisdictions, implements changes, and presses for better interpretations of operation models based on the specifics of the industry. The company’s initiatives to take up these challenges mark it as a serious player in the field of IT services domain.