Service tax dept investigates tax liability on contract to Infosys by GSTN

Experts say should attract tax under current law

A Rs 1,380 crore contact given by GST Network to Infosys to build and maintain technology network for the proposed new indirect tax system is liable to service tax, feel experts. However, ideally services given by GSTN and received by it should be exempt from service tax, they said.  

 

The service tax department is investigating whether the contract is liable to tax. It has asked GSTN CEO Prakash  Kumar to come out with all the relevant papers in this regard.  

 

"We are investigating the case. Let it be investigated first," a service tax official said. 

 

GSTN is responsible for providing the technology backbone to introduce GST and connect the databases of states and the centre.

 

The information technology (IT) system will allow taxpayers to register themselves and file tax returns online. This will also allow collation of data at a central level after which it will be transmitted to the state tax departments. This will prevent tax evasion and widen the tax base as more traders would come under tax net compared to the present system.

 

Ironically, it is the service tax evasion issue against GSTN that is being looked into by the service tax department now.

 

"We have just asked for papers," another official tries to down play the issue.  

 

When contacted, Kumar said he has not received the notice. 

 

M S Mani of Deloitte Haskins & Sells explains that service tax exemption can be provided through a negative list of service tax or through mega exemption notification. While the former requires Parliament's  approval, the latter is just a notification by CBEC. 

 

Neither negative list  nor mega notification issued in 2012 had GSTN as an exempted category. 

 

For instance, mega notification, containing 64 items, says that all services received by the Reserve Bank of India, from outside India in relation to the management of foreign exchange reserves are exempted from service tax. The notification has not been amended since it was issued first in 2012. Negative list of services has 17 categories such as services provided by government or  local authority with some exceptions.  

 

Mani says so far GSTN  does not have any revenue model and is supported by the government. But, once it has a revenue model, it may ask for offsetting the tax paid on this kind of services  by Infosys from the government. 

 

In that case, one arm of the government will pay tax and the other will collect tax, while the compliance burden on GSTN will increase, he said.

 

As such, it does not make sense to not keep GSTN in an exempted category, he opines. 

 

Bipin Sapra, tax partner EY, says in the contract given to Infosys,  the liability will be on the I-T company to pay tax. 

 

However, if the services are provided by GSTN, it has to be evaluated whether the entity getting services  will pay tax or GSTN, depending on whether the Network  is taken as a government entity or private entity. The Centre and states have 24.5 per cent stake each and the rest is distributed between LIC Housing Finance, HDFC,  HDFC  Bank, NSE Strategic Investment  Corporation and ICICI Bank. 

 

The notice to GSTN CEO came amid Indian Revenue Services (IRS) Officers protesting against the Centre's decision to give 90 per cent  of  assessees up to Rs 1.5 crore of annual turnover to states to administer. The issue was flagged by Central  Board of Excise and Customs (CBEC) Chairman Najib  Shah in front of  finance minister minister Arun Jaitley on Customs Day last month.