Infosys GST Update: Karnataka Authorities withdraw GST pre-show cause notice

Infosys GST Update: In a recent development, tech giant Infosys has announced that Karnataka State authorities have officially withdrawn the pre-show cause notice related to GST, which was issued on July 31, 2024. The authorities have directed the Company to submit a further response to the Directorate General of GST Intelligence (DGGI) central authority.

In a statement, the Company confirmed the withdrawal, saying, "We have received a communication from Karnataka State authorities regarding the pre-show cause notice. The notice has been withdrawn, and we are now required to submit additional responses to the DGGI central authority on this matter."

The Company is expected to address the issue directly with the DGGI, as it continues to navigate the complexities of the GST regulations. The move marks a significant shift in the ongoing GST scrutiny, as the Company works towards resolving the matter.

This update provides clarity on the Company’s position and its commitment to complying with tax regulations. 

Infosys recently disclosed that it received a pre-show cause notice from the Karnataka State GST authorities, demanding payment of Rs 32,403 crore in GST for the period between July 2017 and March 2022. This notice concerns expenses incurred by the company’s overseas branches. Infosys has responded to the notice, asserting that, under current regulations, GST is not applicable to these expenses.

The tax demand is based on the Reverse Charge Mechanism (RCM), which requires the recipient of goods or services, rather than the supplier, to pay the tax. Infosys has clarified that GST payments on these expenses are eligible for credit or refund against the export of IT services. In an exchange filing, the company reiterated that it has settled all its GST dues and is fully compliant with both central and state regulations.

GST Applicability Disputed by Infosys

Infosys maintains that, according to a recent circular issued by the Central Board of Indirect Taxes and Customs (CBIC), services provided by its overseas branches to the Indian entity should not be subject to GST. The circular, issued on June 26, 2024, clarifies that such services are exempt from GST as per the GST Council's recommendations.

However, the tax authorities argue that Infosys is liable to pay Integrated Goods and Services Tax (IGST) on these transactions under the Reverse Charge Mechanism. The notice covers expenses amounting to Rs 32,403.46 crore from July 2017 to the 2021-22 fiscal year.