Context: Recently Infosys had received a tax notice of ₹32,403 crore for unpaid IGST under the reverse charge mechanism for services from its overseas branches from 2017-22.
What is Reverse charge mechanism under GST?
- Generally, the supplier of goods or services is liable to pay GST. However, in specified cases the liability may be cast on the recipient under the reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services.
- The input tax credit is received is by the receiver of the good/service in this mechanism.
- Reverse charge mechanism is applicable in the following cases:
- Import of goods/services
- Good/Service is supplied by an unregistered (who is not registered under GST) supplier.
- Services provided by the e-commerce operators.
- Any other category of services notified by the government.
What happened in Infosys case?
The tax authorities had issued notices for remittance sent by the Indian head office to its foreign branches as part of its expenses, even where there is no service between the head office and the foreign branch.
The tax authorities considered them as ‘import of services’ by the head office from the branch.