Information technology (IT) giant Infosys and some foreign airlines and shipping companies are likely to receive some relief from the government on their massive GST liabilities, official sources told FE on Thursday. The GST Council is likely to take up the issue for discussion on September 9 and may deliberate on issuing guidelines regarding the same, the sources said.
“The fitment committee is examining the issue related to taxing import of services under the reverse charge mechanism (RCM). In case, there is a requirement to issue some clarification for some cases where taxes should not be levied, we will issue a circular,” an official told FE.
On July 30, the Directorate General of GST Intelligence (DGGI) 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. However, it later withdrew the notices, 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 said that Infosys needs to submit its documents for the remaining years 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to the company for the transactions it made via its foreign branches…if the full ITC is available, tax notices will be withdrawn,” the official explained.
Foreign airline companies such as British Airways, Lufthansa and Singapore airlines are also facing GST liabilities worth thousands of crore for similar transactions.
To rectify the situation, the government is even considering to amend the June 26, 2024, circular of the Central Board of Indirect Taxes and Customs (CBIC) to grant relief to the companies, another official said. The circular allows the transaction value for the import of services between group companies to be considered ‘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. 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, said Ankur Gupta, practice leader-indirect tax at SW India.
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, Gupta added.
The official, however, 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. However, there is no clarity on how this will be done.
An industry expert said that the June 26 circular does not adequately address the issues faced by foreign shipping lines and airlines, which operate under distinct business models that involve both taxable and exempt supplies. “A clear distinction in the treatment of taxable and exempt supplies is necessary to eliminate ambiguity and facilitate consistent implementation,” the expert said.