Infosys shares fell on August 1, 2024, after the company received a notice from the Directorate General of GST Intelligence (DGGI) alleging GST evasion of over Rs 32,000 crore.
The notice pertains to expenses incurred by Infosys’ overseas branches and claims that the company is liable to pay Integrated Goods and Services Tax (IGST) under the reverse charge mechanism.
Infosys, in response, clarified that GST should not apply to services by overseas branches and asserted compliance with all GST obligations. Despite this clarification, the company’s shares dropped by nearly 1% in early trading on the National Stock Exchange (NSE).
The DGGI notice is a pre-show cause notice, meaning no formal demand for payment has been made yet. Infosys will need to respond to GST authorities to contest the claimed demand.
The Directorate General of GST Intelligence (DGGI) alleges that Infosys evaded paying Integrated Goods and Services Tax (IGST) on services imported from its overseas branches between July 2017 and March 2022. The DGGI argues that these expenses, incurred by the overseas branches and billed to the Indian entity, should attract IGST under the reverse charge mechanism (RCM).
The Reverse Charge Mechanism:
Under RCM, the recipient of the service, rather than the provider, is liable to pay the tax. In this case, Infosys India would be responsible for paying the IGST on services received from its overseas branches.
Infosys’s Standpoint:
Infosys maintains that GST should not be applicable to services provided by overseas branches to the Indian entity. The company cites a recent circular issued by the Central Board of Indirect Taxes and Customs, which states that such services are not subject to GST.
Additional Considerations:
- Interpretation of Tax Laws: The dispute likely hinges on differing interpretations of GST laws and regulations regarding the applicability of IGST on services provided by overseas branches.
- Specificity of Circular: The circular cited by Infosys may not explicitly address the exact scenario of expenses incurred by overseas branches, leading to ambiguity.
- Previous Rulings: There might be previous rulings or precedents in similar cases that could influence the outcome of this dispute.
Overall, the DGGI has issued a pre-show cause notice to Infosys, and the company is currently preparing its response. The final determination will likely depend on further investigation, legal arguments, and potentially a judicial review.