Day after Infy GST demand, Nasscom appeals to govt to clarify stand

Bengaluru: Industry body Nasscom, on Thursday, sought clarity from the union Finance Ministry on the issue of Goods and Service Tax on remittances by tech companies to their foreign branches, saying that multiple firms are facing ‘avoidable litigation’ due to tax demands.

This comes a day after tech giant Infosys Ltd confirmed that it had received pre-show cause notices from the Directorate General of GST Intelligence (DGGI) for alleged integrated Goods and Service Tax (GST) evasion of Rs 32,403 crore.

“Recent media reports of a GST demand of over Rs 320 billion reflects a lack of understanding of industry’s operating model. This is an industry wide issue, and multiple companies are facing avoidable litigation, uncertainty, concerns from investors and customers,” Nasscom said in a statement.

The industry body said it had requested the Ministry of Finance to issue a circular to clarify the position so that the industry can avoid litigation risk. “Circular No. 210/4/2024, dated June 26, 2024, states that for the import of services, the deemed open market value of such transactions will be nil if full input tax credit is available,” said the apex IT body.

Bengaluru-based Infosys, India’s second-largest IT company had received the pre-show cause notice for the period July 2017 to March 2022 pertaining to non-payment of GST on import of services. However, the company asserted that GST is ‘inapplicable on these services’, in a statement to stock exchanges on Wednesday.

Infosys also assured full compliance with the central and state regulations on this matter and that it had cleared all the GST dues.

Addressing the issue, Nasscom also said that this is not a problem limited to Infosys, and GST enforcement authorities have been issuing notices for remittances by several Indian IT companies’ headquarters to their foreign branches even when services provided by the overseas branches are not subject to GST.

The issue at hand involves the applicability of GST through the reverse charge mechanism (RCM).

“Courts have been ruling in favour of the industry in these cases. This issue was even addressed during the erstwhile service tax law, where favourable judgments were delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Karnataka High Court has stayed a show cause notice in a similar case for a large IT company,” Nasscom said, citing precedence. 

Emphasising on the need of a supportive and stable tax policy for India to attract tech investments, the lobby group sought proper implementation of the June circular by the enforcement authorities. 

“Accelerating services exports is key to India’s ambition of Viksit Bharat and attracting global tech investment to India. This requires a supportive policy environment and ease of doing business. It is crucial that compliance obligations are not subject to multiple interpretations,” it said.

Cut-off box - After $4 bn Infosys demand govt may target other IT majors: Sources
NEW DELHI Reuters: Indian authorities may issue notices soon to more major IT services firms in an investigation of alleged tax evasion related to work done by their overseas offices a government source said on Thursday a day after Infosys was slapped with a $4 billion tax demand. In serving its highest-ever tax demand on Infosys the government accused India's second-largest tech services company of evading taxes and sought Rs 32000 crore or almost all its revenue for the quarter ended June 30.
Infosys said late on Wednesday it had received "pre-show cause" notices from the tax authorities but believed the relevant taxes had been paid. The company said in a statement it had paid its dues and is in compliance with central and state regulations.
Yet tax authorities are not confining their investigations to Infosys. "This is an industry-wide issue" a senior tax official with knowledge of the matter told Reuters adding that notices were likely to be sent to some other IT companies.
The source spoke on condition of anonymity as he was not authorised to speak to media.
India's finance ministry did not immediately reply to an email seeking comment.
Experts said more tax notices for the same alleged violations were likely to be in the offing.
"Issuing such a substantial show-cause notice is likely to set a precedent leading to similar notices being issued to other multinational companies particularly in the IT sector" said Rajat Mohan director at accounting firm MOORE Singhi.
The overseas offices carry out projects for Indian IT firms and provide services to international clients among other functions.
Shares of Infosys were down 1% at 1868.25 rupees on Thursday.
Infosys may be in for a long and protracted battle some tax experts said.
"The pragmatic solution for Infosys lies in going to court and getting a stay on these proceedings" said Abhishek Rastogi founder of Rastogi Chambers adding that the services were provided outside India and in that case the company should not have to pay any tax.
In the last year India’s goods and services tax department has sent more than 1000 notices to companies including Life Insurance Corporation of India Dr Reddy’s Laboratories and Ultratech Cement. Tax authorities have also issued notices to online gaming companies demanding a total of about 1 trillion rupees in taxes that they have allegedly evaded.
Companies have challenged these demands in tribunals and courts.
($1=83.7175 Indian rupees) (Additional reporting by Haripriya Suresh in Bengaluru; Editing by Clarence Fernandez and David Holmes)