Amidst escalating scrutiny, the GST Council is poised to reconsider the Input Tax Credit (ITC) availed by companies like Infosys, especially in light of significant tax notices. The upcoming council meeting on September 9 is expected to address these issues, potentially shaping the future of GST compliance for multinational corporations operating in India.
After resolving the pre-show cause notice related to Infosys’ fiscal year 2017-18, authorities are now set to investigate whether the full ITC was claimed on expenses by the company’s overseas branches from FY19 to FY22. The investigation extends to notices issued to Infosys, foreign airlines, and shipping companies, with decisions anticipated during the next GST Council meeting. This scrutiny could determine the trajectory of ITC claims and tax compliance for years to come.
Documents from Infosys, both submitted and pending, will be thoroughly examined by GST officials before deciding on the course of action—whether to close the notice or proceed with formal demands. On July 31, Infosys disclosed receiving a pre-show cause notice from the Director General of GST Intelligence (DGGI) for a staggering ₹32,000 crore in tax dues, arising from its overseas branches between FY18 and FY22. Infosys maintains that these expenses should not attract GST, referencing a June 26 circular that aligns with the GST Council’s recommendation exempting services provided by overseas branches to Indian entities from GST. Furthermore, the company asserted that it has duly paid all GST obligations and is in full compliance with both Central and State regulations.
The DGGI has since closed the pre-show cause notice for FY18, which initially cited a GST amount of ₹3,898 crore. However, notices concerning dues from FY19 to FY22 remain unresolved, continuing to pose a substantial financial challenge for the company. Similarly, foreign airlines and shipping companies have been issued notices related to unpaid taxes on the import of services by their Indian branches from overseas headquarters.
Anticipated Adjustments in GST Regulations
The GST Council is expected to address potential changes in its upcoming meeting, possibly influenced by the June 26 circular. Ankur Gupta, a leading expert in Indirect Tax at SW India, highlighted that the circular permits the transaction value for imported services between group companies to be deemed as NIL, provided the recipient fully avails ITC. However, this exemption is not applicable if the services are used for exempt or non-GST supplies. In such scenarios, the recipient may not be entitled to the full ITC, as Section 17 of the CGST Act, 2017 restricts credit on inputs and services used for exempt supplies.
This limitation implies that GST might still be levied on imported services based on actual consideration or open market value, even among group companies. Moreover, if imported services are partly utilized for exempt or non-GST activities, the recipient must proportionally reverse the ITC according to GST regulations. This reversal could nullify the benefits of NIL valuation, leading to a GST demand on the portion of services used for such supplies. Consequently, while the circular offers considerable relief in specific situations, businesses engaged in exempt or non-GST supplies must meticulously evaluate their transactions to ensure compliance and avert unforeseen tax liabilities.
In summary, the upcoming GST Council meeting is set to be a pivotal event, with potential adjustments to the current GST framework that could have far-reaching implications for multinational companies and their tax obligations in India. Businesses must remain vigilant and proactive in their compliance strategies, especially concerning ITC claims, to navigate the complex landscape of GST regulations effectively.
Views: 0