After Infosys was slapped with a Rs 32,403 crore GST notice, apex IT body Nasscom on Thursday said the latest tax demand reflects a lack of understanding of the industry's operating model and sheds light on sector-wide issues wherein multiple companies are facing avoidable litigation and uncertainty.

In a detailed statement issued just a day after Infosys' BSE filing on GST 'pre-show cause' notice of Rs 32,403 crore, Nasscom asserted that 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.

"Recent media reports of a GST demand of over Rs 320 billion (Rs 32,403 crore) 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, and concerns from investors and customers," Nasscom said without naming Infosys.

The issue at hand involves the applicability of GST through the reverse charge mechanism (RCM).

Nasscom argued that 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 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)," Nasscom said.

The Karnataka High Court has stayed a show cause notice in a similar case for a large IT company, Nasscom emphasised.

"Nasscom had requested the Ministry of Finance to issue a circular to clarify the position so that the industry can avoid this litigation risk. The Government and the GST Council have been supportive, and as a result, less than two months ago, a circular was issued exactly to address this issue," Nasscom said.

The circular dated June 26, 2024, stated that for the import of services, the deemed open market value of such transactions will be 'nil' if full input tax credit is available, it pointed out.

"These demands should stand addressed by the above-mentioned circular, independent of the basic tax position of there being no supply in the first place. We will continue to pursue with the Government on the need for proper implementation of the government circular by the enforcement authorities," it said.

Nasscom said it remains committed to working with the industry and the government to enable ease of doing business and achieving the goal of 'Viksit Bharat'.

It also said that accelerating services exports is key to India’s ambition of 'Viksit Bharat' and attracting global tech investment to India.

"This requires a supportive policy environment and ease of doing business...It is crucial that compliance obligations are not subject to multiple interpretations," the IT body stated.

Nasscom's views come in the backdrop of GST authorities slapping a Rs 32,403 crore notice on Infosys for services availed by the company from its overseas branches for five years starting in 2017.

Infosys has called the notice a 'pre-show cause' notice and said that it believes the GST is not applicable to these expenses.

The Bengaluru-headquartered IT firm on Wednesday said Karnataka State GST authorities have issued a pre-show cause notice for the payment of GST of Rs 32,403 crore for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited and added that the company has responded to the pre-show cause notice.

"...the company has also received a pre-show cause notice from the Director General of GST Intelligence on the same matter and the company is in the process of responding to the same," the filing had said.

The company contended that as per regulations, GST is not applicable to such expenses.

"Additionally, as per a recent circular...issued by the Central Board of Indirect Taxes and Customs on the recommendations of the GST Council, services provided by the overseas branches to Indian entity are not subject to GST," Infosys had said.

Infosys argued that GST payments are eligible for credit or refund against the export of IT services.

"Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," the company said on Wednesday.

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