Infosys May Not Be Liable for Rs 32,000 Crore GST Demand — Here's Why

Even as the Directorate General of GST Intelligence claimed that the company was liable to pay Integrated Goods and Services Tax on services it received from its overseas branches, a notice from June 26, 2024 claims that if a foreign branch doesn't issue an invoice for its services, the value of those services can be considered as zero or based on their market value.

Since circulars are usually meant to clarify existing rules, it’s likely that this new guidance will be considered applicable from the start of the GST law, as per Prateek Bansal, partner at White & Brief Advocates & Solicitors.

The company has also stated that services provided by the overseas branches to Indian entities are not subject to GST, as per a recent circular issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council.

Just because two parts of a company are treated as separate entities, it doesn’t automatically mean that services between them are taxed as if they were imports, explained Abhishek A Rastogi, founder of Rastogi Chambers.

It has to be proven that one part is providing a service to the other, rather than just doing something for itself, he said.

Based on the clarification from the June notice, the demand from Infosys should not withstand, concurred Parag Mehta, partner at N. A. Shah Associates LLP.

It is important to note that the deadline for issuing notices is approaching, that is, the first week of August.

That is why more such notices could surface soon, Rastogi said.

The two key questions here are: What remedies are available, and how can the process be improved when dealing with vague or poorly reasoned demand notices?

This situation is not unique to Infosys and reflects a broader issue faced by many companies in India, as per Ankit Jain, partner at Ved Jain & Associates. It is possible that, with this increased scrutiny, the government will work closely with the GST Council to devise a solution, he said.

The appropriate remedy depends on the language of the notices. Any absurdity or vagueness should be challenged directly in the jurisdictional writ court. However, under the GST law, there is a mandatory pre-deposit to litigate.

However, litigation may be necessary when dealing with such significant issues, as per Rastogi.

But in welfare of trade, industry should collectively make representations to the government and insist on waiving off such notices issued by the intelligence authorities wherein, clarifications have already been issued by CBIC, or approach writ courts seeking appropriate reliefs, according to Vivek Baj, partner at Economic Laws Practice.

The GST Council should quickly clarify trade practices, issue notices on time rather than after many years, and get approval from the Finance Ministry for significant matters that could affect companies' stability, Mehta said.