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DRI Slaps Rs 620 Crore Claim On IBM For Unpaid Duties

The Directorate of Revenue Intelligence (DRI) has issued a notice to technology major IBM, asking it to pay Rs 620 crore in unpaid customs duties for equipment imported into the country, three people familiar with the development.

The DRI — which began investigating the suspected under-invoicing of equipment in 2014 — sent notices to IBM last week, the people said.

The agency has also issued two additional notices, two of the people said, which could take the total dues to Rs 900 crore.

The over-200-page notice for Rs 620 crore details what the DRI terms as omissions by the American company. IBM has been told that it has not been paying customs duty on the operating software sold along with the hardware, as well as duty on the warranty for this equipment. It has also been charged with not paying customs duty on intra-company transfer of assets from different geographies to India, according to the sources cited above.

An IBM executive, who did not want to be named, said the company had received a notice from DRI for payment of dues amounting to Rs 620 crore. The person, however, did not confirm receipt of the other two notices mentioned by the people who had briefed.

A spokesperson for IBM declined to comment on specific matters. Responding to queries, the spokesperson said IBM is “committed to the highest ethical standards and to compliance with applicable laws and regulations in the conduct of its business”.

A query sent to DRI remained unanswered as of press time.

IBM, which has over 100,000 employees in India, imports laptops and personal computers for its local business. It also sells servers and mainframe computers, which are imported, to customers in India that include HDFC Bank and Bharti Airtel.

Tax experts believe the cause for the DRI notices could be something as basic as IBM recording imports and exports under one entry for duty, while customs officials may be placing them under different heads.

“There could be disagreement between the tax authorities and IBM in the way they treat imports and exports,” said a Bengaluru-based tax expert, who did not want to be named.

Another expert said it could be an interpretation of how the assessment is made.

“They (DRI) can say that you have underpriced your equipment by not considering the royalty, technical services or other similar payments to evade customs duty. But it depends on the facts (of the case),” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.

“When an import happens from a related party, there is a special valuation bench order which must be followed. It says such ancillary transactions are required to be disclosed for the authority to assess that the import is at an arm’s length price.”

The DRI notices are not the only tax issue raised by government agencies against IBM. The company has a civil appeal pending in the Supreme Court from 2017 against the Commissioner of Customs and Central Excise, and another against the large taxpayers unit of the Commissioner of Income Tax in Bengaluru from the same year.

India is a big market for IBM, which on a standalone basis earned revenue of Rs 23,350 crore in fiscal 2018, servicing customers such as Bharti Airtel, the Telangana government and Vodafone. The country is also a major hub for software talent for the company. In January, IBM said it had received more than 9100 patents globally in 2018, with Indian inventors being the second-largest contributor with 800 patents.

In 2016, IBM won a major reprieve after the income-tax department withdrew a 2013 claim seeking USD 814 million in taxes. The department had raised the demand on the tax exemptions claimed by IBM under the Software Technology Parks of India (STPI) rules that allowed tax holiday for companies that focused on software exports.―India Finance News

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