IT giant Infosys may be looking at a protracted tax battle with Indian authorities as the Directorate General of GST Intelligence (DGGI) intensifies its scrutiny of the company's alleged tax liabilities for the FY18-22 period. After issuing a notice claiming ₹32,400 crore in alleged tax dues for the five years ended FY22, it is now set to decide on the alleged tax liability of the company for each year separately, according to a person familiar with the development.

The agency's immediate focus is on determining the tax liability for FY19. "Infosys is currently in the process of filing its responses. While the DGGI has until July 2025 to finalize its decision on the FY19 case, a conclusion is expected well before that deadline," said the person, who requested anonymity.

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The case revolves around whether the reimbursement of expenses by Infosys' Indian head office to its overseas branches constitutes payment for services rendered, thereby subjecting the transactions to Integrated GST. Infosys has referenced a 26 June circular from the Central Board of Indirect Taxes and Customs (CBIC), asserting that services provided by overseas branches to Indian entities are not liable for the goods and services tax (GST).

Implications for Infosys and beyond

On 3 August, Infosys informed stock exchanges that it had responded to a 'pre-show cause notice' from the DGGI concerning the period up to March 2022. The company also disclosed that the agency had informed it of "closing the pre-show cause notice proceedings" for FY18.

"With proceedings relating to FY18 getting time barred on 5 August, the closure of pre-show cause notice was fast tracked. For matters relating to FY19, there is time but will be decided upon quickly," the person cited earlier added.

Emails sent on Monday to Infosys and the DGGI seeking comments remained unanswered at the time of publication.

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To date, Infosys has not been required to pay any taxes related to this case. However, it remains uncertain whether further proceedings will occur for FY18. According to the company's filings, the pre-show cause notice for FY18 cited a GST liability of ₹3,898 crore.

The authorities are adhering to statutory timelines, which may involve breaking the impugned period into different financial years, explained Abhishek A Rastogi, founder of law firm Rastogi Chambers.

Rastogi emphasized that the import of services between a branch and its head office must withstand constitutional scrutiny, with particular attention to the provisions of Section 8 of the Integrated GST Act.

"The relevant aspects remain determination of the place of provision of the services because if the place of provision of the service is outside of India, then the supply will not be taxable in India," he added.

Rastogi had successfully argued on import of services for foreign banks.

As the GST Council prepares for its early September meeting, experts anticipate that the council will clarify the taxability of payments made by companies like software exporters to their overseas branches and foreign airlines to their local offices.

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Another person, who also requested anonymity, said this is expected to figure in the Council's discussions and that Infosys tax issue will be resolved.