GST Officials to Review GST ITC Availed Before Determining on Infosys Tax Demand Notice

Post-closing the pre-show cause notice for Infosys pertinent to FY 2017-18, the investigation officials will analyze whether full ITC was claimed towards the expenses made via the overseas branch offices from FY19 to FY22.

A procedure to solve the issuance of the notices to Infosys along with the foreign airlines and shipping council is anticipated to be carried out in the forthcoming meeting of the GST council, scheduled to take place on September 9.

The submitted documents or to be submitted by Infosys will get analyzed and as per that, the decision will be made whether to close the notice or move with the demands, as per the senior Government official. The company on July 31 mentioned that it had obtained a pre-show cause notice from the Director General of GST Intelligence towards the tax dues of Rs 32000 crore made via its overseas branch offices in FY 18 to FY 22.

The company assumed that no GST was applicable on such expenses. On June 26 a circular based on the GST Council’s suggestions cited that the services furnished via the overseas branches to the Indian entity are not within GST. it is to be learned that the GST payments are qualified for the credit or refund against the export of IT services. It mentioned that it has paid its GST dues and is in compliance with Central and state regulations.

Thereafter the company mentioned that it had obtained a communication from DGGI closing the pre-show cause notice proceedings for FY18. For this duration, the GST amount according to the pre-show cause notice was Rs 3898 crore.

However, the notices for the dues from FY19 to FY22 are not completed till now. Related to the unpaid taxes on the import of services various foreign airlines and shipping companies obtained notices via the Indian branches from their head offices.

Predicted modification

Towards all such matters, relief could be anticipated based on the revisions in the June 26 circular. As per the sources, the GST council in the subsequent meeting might acknowledge making amendments.

Tax experts cited, that the circular authorizes the transaction value for the import of services between group companies to be regarded as NIL furnished the receiver could claim the GST input tax credit (ITC). The relief does not extend to the cases where the services are being used for the exempted or non-GST supplies.

In these matters, the recipient might not be able to avail of the ITC, as the GST law limits credit on inputs and services used to make the exempt supplies u/s 17 of the CGST Act, 2017. The same limitation directed that the GST can still be charged on the import of services based on the actual consideration or open market value, even between the group companies.

Furthermore, when imported services are partially utilized for exempt or non-GST activities, the recipient must reverse the input tax credit proportionately by GST rules. This reversal would invalidate the advantage of the NIL valuation, possibly resulting in a GST liability for the portion of services utilized for those supplies.

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Hence the circular furnishes relief in specific cases, businesses engaged in exempted or non-GST supplies should evaluate their transactions to ensure compliance and avoid unanticipated tax obligations.