India’s second-largest IT company Infosys has received demand for alleged tax evasion of over Rs 32,000 crore from the Directorate General of GST Intelligence (DGGI), according to a document viewed by Moneycontrol.
"In lieu of receipt of supplies from overseas branch offices, the Company has paid consideration to the branch offices in the form of overseas branch expense. Hence, M/s Infosys Ltd, Bengaluru is liable to pay IGST under reverse charge mechanism on supplies received from branches located outside India to the tune of Rs. 32,403.46 crores for the period 2017-18 (July 2017 onwards) to 2021-22.," the document read.
The Reverse Charge Mechanism (RCM) in Goods and Services Tax (GST) is a system where the recipient of goods or services is liable to pay the tax instead of the supplier.
The document further says that Infosys was including the expenses incurred towards overseas branches as part of their export invoice from India and basis the said export values, was computing the eligible refund.
"The receipt of export proceeds and export invoice related to the project was being raised by the Company," the document reads.
Infosys, in an exchange filing, said it has paid all dues and GST is not applicable on expenses claimed by DGGI. "Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," the company said in the filing.
The document also reveals intelligence gathered and developed by the officers of Bengaluru's DGGI indicating that the company has received services from overseas branches and has not paid Integrated Goods and Services Tax (IGST) under RCM on the import of services.
The amount of penalty alleged against the Bengaluru-based company is approximately a year's profit and about a quarter's worth of revenue. For the quarter ended June 30, Infosys' net profit rose 7.1 percent on-year to Rs 6,368 crore, while the consolidated revenue from operations rose 3.6 percent on-year to Rs 39,315 crore.
Infosys manages the Goods and Services Tax Network (GSTN) portal. GSTN has built the indirect taxation platform for GST to help taxpayers in India prepare, file returns, make payments of indirect tax liabilities, and do other compliances.
Also read: Tax terrorism at its worst: Former Infosys CFO Mohandas Pai slams Rs 32,000 cr GST demand to IT firm
What exactly transpired?
The document reveals that Infosys entered into a "Global Master Services Agreement" with a client located outside India. After being awarded the project, Infosys put together a team of engineers/personnel having the requisite skill sets.
Infosys then executes these projects in centres located within and outside India. The overseas branches ensure operation and service delivery, improving coordination between customers and the company's main office in India.
The document further said that, according to the IGST Act, 2017, branch offices set up abroad should be considered separate establishments, making them distinct from the company.
Nonetheless, Infosys included expenses from its overseas branches in its export invoices from India, using these values to calculate eligible refunds.
However, importing services means the supplier is outside India, the recipient is in India, and the service is supplied in India, according to the IGST Act.
This was not the case in these transactions, and consequently, Infosys should pay Rs 32,403.46 crores from July 2017 to 2021-22, under the RCM for services received from its overseas branches, the document said.
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