Karnataka Authorities Withdraw Infosys GST Notice, Directs Company To Respond To DGGI

On Wednesday, the Bengaluru-based IT firm revealed that Karnataka State GST authorities had issued a pre-show cause notice to the firm demanding Rs 32,403 crore in GST payments

Karnataka authorities have revoked the ‘pre-show cause’ notice issued to the IT giant Infosys and instructed the company to provide a new response to the DGGI central authority regarding the Rs 32,400 crore GST demand issue. The DGGI is the primary intelligence and investigative agency for issues related to Goods & Services Tax, Central Excise Duty, and Service Tax. It is responsible for better compliance with Indirect Tax laws.

"The company has received a communication from Karnataka State authorities, withdrawing the pre-show cause notice and has directed the company to submit a further response to DGGI central authority on this matter," Infosys said in a BSE filing on Thursday evening.

The IT company made headlines on Wednesday when GST authorities issued a Rs 32,403 crore notice for services provided by its overseas branches over the past five years, starting in 2017. The company had previously referred to this as a 'pre-show cause' notice and has consistently maintained that GST should not apply to the specified expenses.

Narinder Wadhwa, Managing Director and CEO of SKI Capital stressed the importance of thorough investigations and concrete evidence before taking legal action against companies with substantial international operations to ensure market stability and uphold investor confidence, according to a PTI report.

Wadhwa added: “The GST department should be careful when issuing such notices against large, reputable companies, especially those like Infosys, whose major business is international. Allegations and reputational damage can significantly affect these companies’ business operations and market standing. For companies with substantial global business, such reputational losses can lead to a loss of client trust and potentially impact international partnerships and revenue streams." 

On Wednesday, the Bengaluru-based IT firm revealed that Karnataka State GST authorities had issued a pre-show cause notice demanding Rs 32,403 crore in GST payments for the period from July 2017 to March 2022 related to expenses incurred by Infosys Limited's overseas branch offices. The company also stated that it has responded to the pre-show cause notice.

"...the Company has also received a pre-show cause notice from Director General of GST Intelligence on the same matter, and the Company is in the process of responding to the same," Infosys said on Wednesday.

The company said that, according to regulations, GST should not be applicable to these expenses.

"Additionally, 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 Indian entity are not subject to GST. Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," it added.