Karnataka authorities have rescinded a significant GST Notice sent to Infosys, amounting to Rs 32,000 crore. This development was disclosed in an exchange filing on Thursday, leading to a 1% drop in Infosys shares during early trading on Friday.
In response to the rescinded GST notice, Karnataka State Authorities have instead instructed Infosys to provide further details to the Directorate General of GST Intelligence (DGGI), the central authority overseeing such matters. This adjustment in the regulatory approach follows a prior notice issued to Infosys regarding GST claims associated with its overseas branches.
Implications of the GST Notice Sent to Infosys
The reversal of the Rs 32,403 crore GST notice comes after Infosys disclosed that Karnataka GST authorities had raised concerns about services provided by its international branches over the past five years, starting from 2017. Infosys has argued that these expenses should not be subject to GST.
In its filing, Infosys stated, “The Company has also received a pre-show cause notice from the Director General of GST Intelligence on the same issue and is in the process of responding.” The company referenced a recent circular from the Central Board of Indirect Taxes and Customs, which supports GST Council recommendations indicating that services provided by overseas branches to Indian entities are not liable for GST.
Infosys has asserted that GST payments should be eligible for credit or refund against the export of IT services. The company confirmed, “Infosys has paid all its GST dues and is fully in compliance with central and state regulations on this matter.”
Reports indicate that the GST authorities’ notice claimed, “In light of the supplies received from overseas branch offices, the Company has paid consideration in the form of overseas branch expenses. Therefore, M/s Infosys Ltd, Bengaluru is liable to pay IGST under the reverse charge mechanism for supplies received from branches outside India amounting to Rs 32,403.46 crore for the period from 2017-18 (July 2017 onwards) to 2021-22.”
The Directorate General of GST Intelligence in Bengaluru alleged that Infosys failed to pay Integrated GST (IGST) on the import of services as a recipient. The allegation includes claims that Infosys incorporated expenses from its overseas branches into its export invoices without accounting for IGST under the reverse charge mechanism.
The tax demand presented by the authorities is substantial, surpassing Infosys’s annual profit. For the June quarter, Infosys reported a net profit increase of 7.1% year-on-year to Rs 6,368 crore, with revenue from operations rising 3.6% to Rs 39,315 crore.
Nasscom Defends Infosys Against GST Notice
Nasscom, the apex IT industry body, has defended Infosys, suggesting that the GST notice sent to Infosys reflects a misunderstanding of the industry’s operational model. In a detailed statement, Nasscom emphasized the importance of adhering to government circulars based on GST Council recommendations to ensure clarity and avoid disrupting India’s ease of doing business.
Nasscom’s defense underscores the need for a consistent interpretation of GST regulations, stressing that enforcement actions should align with established guidelines to prevent uncertainty and negative impacts on the industry. The IT sector body’s support highlights the broader implications of the GST notice on Infosys and similar companies, advocating for a more nuanced approach to regulatory compliance.
As Infosys prepares its response to the updated directives from the Karnataka authorities and the DGGI, the outcome of this matter remains crucial for the company and its stakeholders. The resolution of this issue will be closely watched by investors and industry observers, given the substantial financial implications and regulatory precedents involved.
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