 "Nasscom urges govt to have simple and single interpretation on compliance")
Tech industry body Nasscom has sought Union finance ministry’s clarification on the Rs 32,000 crore GST demand notice served on India’s second largest IT services company Infosys, while urging the government to bring in simple interpretation on compliances.
The National Association of Software Services Companies (Nasscom) in a statement said, “The government circulars issued based on recommendations of the GST Council must be honoured in enforcement mechanisms so that notices do not create uncertainty and negatively impact perceptions on India’s ease of doing business. It is crucial that compliance obligations are not subject to multiple interpretations.”
On July 30, DGGI sent a notice to Infosys for non-payment of GST for the period of 2017-18 to 2021-22 to the tune of Rs 32,403.46 crore.
Nasscom in its statement said “…reflects a lack of understanding of the industry's operating model. This is an industry wide issue, and multiple companies are facing avoidable litigation, uncertainty, concerns from investors and customers.”
It was not just Nasscom that raised concern.
Mohandas Pai, chairman of Aarin Capital and former CFO, Infosys in a post on X wrote, “If this notice is correct this is outrageous, a case of Tax Terrorism at its worst. Service exports from India are not subject to GST. Can officials interpret anything they want?”
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Tax experts too were surprised.
Ritesh Kanodia, partner Aurtus Legal, in a blog on taxsutra wrote, “It will be relevant to refer to Explanation 2 to Section 8 of the IGST Act which stipulates that a person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory. The key condition is that the ‘person’ is to carry on business through a branch or an agency or representational office, to be treated as an ‘establishment’ outside India.”
He further adds, “Whether a branch is carrying on a business or whether it is merely a liaison office, or a representational office is a question of fact that needs to be examined.”
Nasscom in its statement explains that 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.
“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,” said Nasscom.
Nasscom had requested the Ministry of Finance to issue a circular to clarify the position so that the industry can avoid this litigation risk.
“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,” added Nasscom.
Nasscom also pointed out that the industry is crucial for the country’s ambition of Vikshit Bharat.
Nasscom’s response comes amid reports that such similar tax demand will be sent to other IT services players as well.