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Infosys, India's second-largest IT services company, has been embroiled in a tax controversy after receiving a staggering goods and services tax (GST) demand of ₹32,403 crore. This demand, as reported by Reuters, is linked to services that Infosys procured from its overseas branches over a five-year period beginning in 2017. The tax document alleges that Infosys made payments to its overseas branches for expenses, leading to its liability under the Reverse Charge Mechanism (RCM). Under this mechanism, the recipient of goods or services, rather than the supplier, bears the responsibility for paying the tax. In this instance, Infosys is deemed liable for Integrated Goods and Services Tax (IGST) on these supplies, totaling Rs 32,403.46 crore from July 2017 to 2021-22.
Infosys, however, has vehemently denied the allegations and maintained that it has settled all GST dues. The company asserts that GST is not applicable to the expenses cited by the Directorate General of GST Intelligence (DGGI). To support its stance, Infosys points to a recent circular (number 210/4/2024 dated June 26, 2024) issued by the Central Board of Indirect Taxes and Customs, based on recommendations from the GST Council. This circular clarifies that services rendered by overseas branches to Indian entities are not subject to GST. Furthermore, Infosys emphasizes that any GST payments made are eligible for credit or refund against the export of IT services.
The controversy stems from the DGGI's intelligence gathering, which indicated that Infosys had not paid IGST under RCM for the import of services from its overseas branches. The DGGI reportedly found that Infosys had included expenses incurred by its overseas branches in its export invoices from India. These export values were then used to calculate eligible refunds. This has led to accusations of tax evasion and ignited a public debate about the interpretation of GST regulations on services provided by overseas branches. The situation has attracted criticism from former Infosys CFO Mohandas Pai, who described the notice as 'outrageous' and an example of 'tax terrorism' given that service exports from India are not subject to GST.
The latest tax dispute adds to a growing list of controversies surrounding Infosys and the GST Department. In April, the Odisha GST Authority imposed a fine of Rs 1.46 lakh on Infosys for availing ineligible input tax credit. This ongoing dispute underlines the complexities and potential for disagreements in interpreting and applying India's GST laws. The outcome of the current investigation will have significant implications for Infosys and could set a precedent for how similar transactions are treated under the GST regime in India.