The Central Board of Indirect Taxes and Customs (CBIC) is considering modifying its June 26, 2024 circular, in what could pave the way for quashing the entire Goods and Service Tax liability of information technology giant Infosys for its business-as-usual fund transfers to overseas branches, according to an official source. The change would enable the expunging of the tax burden on the firm, and others who received similar notices, even in cases where “exempt services’ are involved, the source added.
The tax notices to the company in this respect under the reverse charge mechanism amounted to over Rs 30,000 crore for the period between 2017-18 and 2021-22.
The June circular allows the transaction value for the import of services between group companies to be considered ‘nil’, provided the recipient can fully avail the input tax credit. Hence, for supplies on which full ITC can be availed, no GST is levied.
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”.
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. The proposed changes in the circular would address the issue, in favour of the taxpayers. A decision on the withdrawal of tax demands for the year 2018-19 will be taken soon, a source said. The same approach may be taken for tax notices pertaining to subsequent years too.
The GST field officers are studying documents submitted by Infosys on a year-on-year basis about the transactions they made with their foreign branches.
In July, the Directorate General of GST Intelligence (DGGI) had issued a Rs 32,403-crore ‘pre-show-cause’ notice to Infosys, stating that the company has not paid GST under the ‘reverse-charge mechanism’ (RCM) on import of services, received from its overseas branches, for the period between July 2017 and 2021-22. But it later withdrew the notice, amounting to Rs 3,989 crore for 2017-18, after the IT major submitted its documents of the transactions made during that period.
An official had told FE earlier that Infosys needs to submit its documents for the remaining years (2018-19 to 2021-22) against the tax demand by November 30 – the deadline for the companies to file their annual return.
“Once the documents are submitted, tax authorities will examine the company’s tax liability on the basis whether or not input tax credit (ITC) is available to the company for the transactions it made via its foreign branches…if the full ITC is available, tax notices will be withdrawn,” the official had explained.
Meanwhile, another official had said that relief through making changes in the June 26 CBIC circular could be provided to Infosys, in case field officers don’t withdraw the tax demands. The June circular allows the transaction value for the import of services between group companies to be considered ‘nil’, provided the recipient can fully avail the input tax credit. Hence, for supplies on which full ITC can be availed, no GST is levied on it.
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”. 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, as per tax experts.
However, an official had earlier told FE that the June circular could add a provision where companies would be able to claim ITC even in the case of services used for “exempted/non-GST supplies”, which effectively means that transactions on which the ITC can’t be claimed currently will come under the ambit of the latter, and no tax will be levied.
From: financialexpress
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