GST authorities have issued a notice to Infosys demanding a payment of Rs 32,403 crore for services availed by the company's overseas branches over five years starting from 2017. This notice has been described by Infosys in a stock exchange filing as a 'pre-show cause' notice. The IT firm, headquartered in Bengaluru, asserted that it believes GST does not apply to these expenses.
According to Infosys, the Karnataka State GST authorities have demanded payment for the period from July 2017 to March 2022, covering expenses incurred by the company's overseas branch offices. Infosys has already responded to this pre-show cause notice. Additionally, the company has received a similar notice from the Director General of GST Intelligence, to which it is currently in the process of responding.
Infosys maintains that under current regulations, GST should not apply to these expenses. The company referred to a recent circular issued by the Central Board of Indirect Taxes and Customs, which, following the recommendations of the GST Council, clarified that services provided by overseas branches to the Indian entity are not subject to GST.
Infosys also argued that any GST payments made would be eligible for credit or refund against the export of IT services, asserting that it has paid all its GST dues and remains in full compliance with central and state regulations on this matter.
The document sent by GST authorities to Infosys states: "Instead of receipt of supplies from overseas branch offices, the Company has paid consideration to the branch offices in the form of overseas branch expense. Hence, M/s Infosys Ltd, Bengaluru is liable to pay IGST under reverse charge mechanism on supplies received from branches located outside India to the tune of Rs 32,403.46 crores for the period 2017-18 (July 2017 onwards) to 2021-22."
The Directorate General of GST Intelligence in Bengaluru contends that Infosys did not pay the Integrated GST (IGST) on the import of services as a recipient of services. It alleges that Infosys established branch offices outside India and included the expenses it incurred towards these branches as part of its export invoice.
This demand, amounting to Rs 32,403 crore, exceeds Infosys's annual profit. In the June quarter, Infosys reported a net profit increase of 7.1 percent year-on-year to Rs 6,368 crore, with revenue from operations rising by 3.6 percent to Rs 39,315 crore compared to the previous year.
The GST demand has attracted considerable attention, partly because Infosys is responsible for managing the Goods and Services Tax Network (GSTN) portal. In 2015, Infosys secured a Rs 1,380 crore contract to build the technology platform for the Goods and Services Tax (GST).
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