GST fears casting shadow over IT cos

Most feel that such notices are AI-led & system-generated, which are sent to companies without any oversight from senior officials. Such notices don’t augur well for the overall sentiment -- Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Tax Tangle:

♦ Industry has sought clarity on reverse charge mechanism clause

♦ Sources pointed out it might be AI-led notice, sent without proper oversight

♦ Infosys said tax authorities withdrew demand for Rs4K cr out of total Rs32,403 cr

Bengaluru: GST demand notice to Infosys has opened up a pandora’s box with regard to ‘reverse charge mechanism’ clause that can be invoked against any IT services provider in the coming days.

Industry experts said leaders of the industry have sought clarity in this regard, so that it can’t be misused in the future.

“Industry participants are obviously upset with such demand notice. That’s why, strong reactions from leaders and Nasscom have come. Most feel that such notices are AI-led & system-generated, which are sent to companies without any oversight from senior officials. Such notices don’t augur well for the overall sentiment,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.

Sources in the know said that the Finance Ministry has taken serious note of the development as it has unnecessarily snowballed into a big controversy. While the government is trying hard to attract more FDI into the country, especially in the form of opening up GCCs (global capability centres) by global enterprises, such developments can dampen investor sentiment.

“There is a feeling that such notices are the handiwork of junior-level bureaucrats without the proper oversight of seniors. If the current notice to Infosys is not withdrawn, then it is expected that such notices can be issued to any IT firm with overseas presence. So, it is important that the ministry should give clarity on the whole reverse charge mechanism, ending the grey area in this space,” said another industry source.

Meanwhile, Infosys in a filing informed that GST authorities have withdrawn notice of Rs3,898 crore out of the total tax demand of Rs32,403 crore raised last week for the five-year period starting 2017-18. The company informed stock exchanges about receiving such a communication from Directorate General of GST Intelligence (DGGI).

“The company had received and responded to a pre show-cause notice issued by DGGI for the period July 2017 to March 2022. The company has now received a communication from DGGI closing the pre-show cause notice proceedings for the financial year 2017-2018. The GST amount as per the pre-show cause notice for this period was Rs3,898 crore,” Infosys said.

However, the rest Rs28,000 crore demand notice to Infosys stays as per sources. The current issue pertains to ‘reverse charge mechanism’ clause, under which the recipient of goods and services assumes the responsibility for tax payment, instead of the seller.

Infosys has said that as per a recent circular (circular number 210/4/2024 dated June 26, 2024) issued by the Central Board of Indirect Taxes and Customs (CBIC) on the recommendations of the GST Council, services provided by the overseas branches to the Indian entity are not subject to GST. Therefore, such clauses can’t be invoked for raising tax demand, it has said.