Infosys Receives Withdrawal of ‘Pre-Show Cause’ Notice

Infosys, India’s second-largest IT services company, announced that the Karnataka State Authorities had withdrawn a ‘pre-show cause’ notice.

This development follows the issuance of a substantial ₹32,403 crore notice from Karnataka GST authorities concerning the company’s overseas branches.

Response and Current Status:

In an exchange filing, Infosys stated that it received a pre-show cause notice from the Director General of GST Intelligence (DGGI) on the same matter. The company is in the process of responding to this notice.

Infosys emphasized its compliance, stating, “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 the Indian entity are not subject to GST.”

Company’s Compliance and Argument:

Infosys contends that its GST payments are eligible for credit or refund against the export of IT services. The company asserted, “Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter.”

The original notice from GST authorities claimed that Infosys was liable to pay IGST using the reverse charge mechanism. This liability arose due to supplies received from its overseas branches, which were paid for in the form of overseas branch expenses. The notice covered the period from July 2017 to 2021-22, amounting to ₹32,403.46 crores.

Industry Reaction on Notice to Infosys:

Nasscom, the apex IT body, defended Infosys, criticizing the tax demand as a misunderstanding of the industry’s operating model.

Nasscom stated, “Recent media reports of a GST demand of over ₹320 billion (₹32,403 crore) reflect a lack of understanding of the industry’s operating model.

This is an industry-wide issue, and multiple companies face avoidable litigation, uncertainty, and concerns from investors and customers.”