The Directorate General of Goods and Service Tax Intelligence is investigating the information technology company Infosys for allegedly evading over Rs 32,000 crore in integrated Goods and Services Tax over five years, The Economic Times reported on Wednesday.
The Bengaluru-based company, however, said in a stock exchange filing in response to news reports that it had received a “pre-show cause” notice from the law enforcement agency and claimed that GST did not apply to the expenses in contention, The Indian Express reported.
In its notice on Tuesday, the Directorate General of GST Intelligence alleged that Infosys was under the scanner for the “non-payment of IGST [integrated GST] on import of services as recipient of services” between July 2017 to March 2022.
The Directorate General of GST Intelligence is a law enforcement agency under the Union Ministry of Finance responsible for probing tax evasion. The integrated Goods and Services Tax is an indirect tax levied on the inter-state supply of goods and services.
According to the law enforcement agency, Infosys created overseas branches to service clients as part of its agreement with them. These branches and the company are treated as “distinct persons” under the Integrated GST Act, which provides for the collection of tax on the inter-state supply of goods or services or both.
“Thus, in lieu of receipt of supplies from overseas branch offices, the company has paid consideration to the branch offices in the form of overseas branch expense,” the notice said, according to The Economic Times. “Hence M/s Infosys Ltd Bengaluru is liable to pay GST under the reverse charge mechanism on supplies received from branches located outside India.”
Under the reverse charge mechanism, the recipients of goods or services are liable to pay the tax rather than their suppliers.
The Directorate General of GST Intelligence added that further investigation of the matter is ongoing.
In its response, Infosys said that the Karnataka GST authorities had issued a “pre-show cause notice” for a tax claim of Rs 32,403 crore in GST on expenses incurred by the company’s overseas branch offices for the period between July 2017 and March 2022. It added that it had responded to this notice.
“…the company has also received a pre-show cause notice from the Director General of GST Intelligence on the same matter and the company is in the process of responding to the same,” the firm clarified in it its exchange filing, according to The Indian Express.
It added that GST did not apply to the listed expenses as per regulations.
Infosys said: “Additionally, as per a recent circular [circular number 210/4/2024 dated June 26, 2024] issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to the Indian entity are not subject to GST.”
In June, the Central Board of Indirect Taxes and Customs had flagged the import of services by a registered person or company in India from a related person or company located outside the country.
The board had clarified that “tax is required to be paid by the registered person in India under reverse charge mechanism”.
Infosys noted that its GST payments were eligible for credit or refund against the export of its IT services. “Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter.”
The company had said in April that it had been fined Rs 1.46 lakh by the Odisha GST authorities for availing ineligible input tax credit, The Economic Times reported.