BENGALURU: A day after the country's second largest IT services company Infosys received a pre-show cause notice from the Directorate General of GST Intelligence (DGGI), industry body NASSCOM has urged the Ministry of Finance to issue a circular clarifying the position so that the industry can avoid litigation risk.
Infosys received a notice from the DGGI for Rs 32,403 crore towards non-payment of GST for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of the company. "This is an industry wide issue, and multiple companies are facing avoidable litigation, uncertainty, concerns from investors and customers", NASSCOM said on Thursday.
"The issue at hand involves the applicability of GST through the reverse charge mechanism (RCM). The GST enforcement authorities have been issuing notices for remittance by the Indian head office to its foreign branches for cases where there is no service between the head office and the foreign branch for this RCM, ignoring that this is not a case of ‘import of service’ by the head office from the branch," it explained.
NASSCOM in a statement said this is not a new problem and courts have been ruling in favour of the industry in these cases. "This issue was even addressed during the erstwhile service tax law, where favourable judgments were delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Karnataka High Court has stayed a show cause notice in a similar case for a large IT company," it said.
"The Government and the GST Council have been supportive and as a result, less than two months ago, a circular was issued exactly to address this issue. This Circular No. 210/4/2024, dated June 26, 2024, states that for the import of services, the deemed open market value of such transactions will be NIL if full input tax credit is available," it added in the statement.
"We will continue to pursue with the Government on the need for proper implementation of the government Circular by the enforcement authorities," it said.
According to Rajat Mohan, Executive Director, Moore Singhi, this situation is unlikely to reach a swift resolution, as it will undergo the lengthy processes of adjudication, appeals, and possibly a high court review. "Alternatively, the GST Council might address this matter and issue a clarification. However, this process could also take several months, given the procedural requirements," he added.