Infosys gets service tax notice for Rs 33 cr

The Indian IT sector continues to be in the news for all wrong reasons with another leading firm Infosys coming under the government scanner for alleged evasion of service tax worth Rs 33 crore on commission paid by the company for its global issue.

"We have issued showcause notice as the company has not paid service tax on the underwriting commission paid by Infosys towards American Depository Receipt (ADR) for the years 2003, 2005 and 2006," said a senior tax official.

The service tax commissionerate in Bangalore issued showcause notice to the company on October 24, 2008, he said.

By sponsoring ADRs in the overseas markets, the company aimed at increasing foreign share holding in the firm.

However, the company in this regard has said the notice is not a determination of any liability and that the company has time till the first week of February to reply.

"We strongly believe that since it is a sponsored ADR program, the company had not taken any taxable services and only facilitated the issue. The services were basically taken by the selling shareholders. We will be replying in detail to the authorities in due course," Infosys Technologies Chief Financial Officer Balakrishnan V told PTI.

Companies which sponsor ADRs do it with an intention of increasing the liquidity of its foreign-listed stocks. The move is also aimed at increasing market capital in these foreign bourses, getting the stocks to be covered by global analysts and held by well-known, long-term investors.