After closing the pre-show cause notice for Infosys related to fiscal year 2017-18, investigation officials will now examine whether full Input Tax Credit (ITC) was availed of in expenses incurred by overseas branch offices from FY19 to FY22. Meanwhile, a mechanism to resolve issuance of notices to Infosys, along with foreign airlines and shipping council, is expected to be taken up in the next meeting of the GST Council, scheduled to take place on September 9.

“Documents submitted or to be submitted by Infosys will be examined and accordingly decision will be taken whether to close the notice or proceed with raising demands,” a senior Government official told businessline. On July 31, the company said it had received a pre-show cause notice from the Director General of GST Intelligence over tax dues of ₹32,000 crore incurred by its overseas branch offices in FY 18 to FY 22.

The company was of the belief that GST was not applicable on these expenses. Additionally, a circular dated June 26, based on the recommendations of the GST Council, stated that services provided by overseas branches to Indian entity are not subject to GST. It is also important to note that GST payments are eligible for credit or refund against export of IT services. It claimed that it has paid its GST dues and is fully in compliance with the Central and State regulations.

Later, the company said that it had received a communication from DGGI closing the pre-show cause notice proceedings for FY18. The GST amount for this period, as per the pre-show cause notice, was ₹3,898 cr. However, notices for dues from FY19 to FY22 are still pending. Similarly, various foreign airlines and shipping companies received notices pertaining to unpaid taxes on the import of services by Indian branches from their head offices.

Tweaks expected

In all these cases, relief can be expected based on changes in the June 26 circular. Sources said that GST Council, in its next meeting, may consider making changes.

Ankur Gupta, Practice Leader - Indirect Tax at SW India, said the circular allows the transaction value for the import of services between group companies to be considered as NIL, provided the recipient can fully avail of the ITC. However, this relief does not extend to situations where the services are used for exempted or non-GST supplies. In such cases, the recipient may not be able to claim the full ITC, as the GST law restricts credit on inputs and services used for making exempt supplies under Section 17 of the CGST Act, 2017. This limitation means that GST could still be levied on the import of services based on the actual consideration or open market value, even between group companies.

Moreover, if the imported services are partly used for exempted or non-GST activities, the recipient would need to proportionally reverse the ITC as per the GST rules. This reversal would negate the benefit of the NIL valuation and could lead to a GST demand on the portion of services used for such supplies. Therefore, “while the circular provides significant relief in certain scenarios, businesses involved in exempted or non-GST supplies must carefully assess their transactions to ensure compliance and avoid unexpected tax liabilities,” he said.

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