The Goods and Services Tax Network’s (GSTN’s) Rs 1,380-crore contract to Infosys to build and maintain the technology backbone for the indirect tax system is liable to service tax, according to experts. But the services given by GSTN and received by it should ideally be exempt from service tax, they said.

The service tax department is investigating whether the contract is liable to tax. It has asked GSTN CEO Prakash Kumar for the relevant papers. Kumar said he had not received the notice. "We are investigating the case. Let it be investigated first," a service tax official said.

M S Mani of Deloitte Haskins & Sells said service tax exemption could be provided through a negative list of service tax or through a mega exemption notification (requires only a notification by the Central Board of Excise and Customs). Neither the negative list nor the notification issued in 2012 had GSTN as an exempted category.

The notification of 64 items listed all services received by the Reserve Bank of India from abroad in managing foreign exchange reserves as exempt from service tax. The notification has not been amended. The negative list of services has 17 categories, such as those provided by the government or the local authorities with some exceptions.

Mani said GSTN did not have any revenue model and was supported by the government. But once it gets a revenue model, it might ask for offsetting the tax paid on this kind of services by Infosys. In that case, one arm of the government would pay tax and the other would collect tax, while the compliance burden on GSTN would increase. As such, it does not make sense to not keep GSTN in an exempted category, he added.

Bipin Sapra, tax partner, EY, said the liability would be on the information technology company. However, if the services are provided by GSTN, they have to be evaluated whether the entity getting the services will pay tax or GSTN, depending on whether the network is taken as a government or private entity.