Infosys GST demand notices: Relief in sight, 2 options on the table

Finance ministry may declare notices null and void or reduce tax liability

The Ministry of Finance is considering granting relief to IT major Infosys regarding goods and services tax (GST) demand notices for around Rs 30,000 crore by amending a circular issued on June 26, according to a senior official.
 

“The government may make the necessary amendments to the Circular 210 (which served as the basis of the GST demand notices) to grant relief to Infosys — either by declaring the notices null and void or by reducing the tax liability,” the official stated.

The Central Board of Indirect Taxes and Customs (CBIC) had issued the Circular 210, clarifying valuation of import of services by a related person where recipient is eligible for full input tax credit (ITC).
 

The official further said that the CBIC is currently reviewing the GST pre-show cause notices issued to Infosys. “We will conduct a year-by-year analysis of the case. One option being considered is the application of Rule 28 of the CGST Rules, 2017.”
 

Rule 28 provides for the determination of the value of supply of goods or services, or both, between distinct or related persons. The same rule prescribes alternative methods for computation of the taxable value of supply of goods or services between distinct or related persons.
 

In July, the Directorate General of GST Intelligence (DGGI) issued a pre-show cause notice to Infosys for Rs 32,403 crore, claiming that the firm had not paid GST under the reverse-charge mechanism (RCM) for services imported from its foreign branches during the period spanning 2017-18 to 2021-22. 
 

However, the DGGI subsequently retracted the Rs 3,898 crore notice pertaining to 2017-18 after Infosys provided documentation related to the transactions from that period.
 

In a notification to stock exchanges on August 3, Infosys confirmed that the demand for the 2017-18 financial year amounting to Rs 3,898 crore had been closed. The company previously asserted that it had settled all dues and remained compliant with central and state regulations.
 

“Generally, transactions betweenhead office and branch office are in the nature of financial funding which is not liable to GST. Therefore, one needs to analyse the underlying transactions between head office and branch office before determining the tax liability,” said Harpreet Singh, partner at Deloitte India.