Karnataka GST authorities withdraw pre-show-cause notice served to Infosys, directs the company to respond to DGGI

The state tax watchdog has also directed the Bengaluru-headquartered software services company to submit further responses to the Directorate General of GST Intelligence (DGGI) central authority, according to reports.

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

Earlier on Wednesday (July 31), the Karnataka state tax authorities flagged indirect tax evasion of Rs 32,403 crore at Infosys Ltd over services provided by its overseas branches.

Infosys, India's second-largest IT firm, believes the tax does not apply to the services.

A DGGI note said it is investigating the technology blue chip for evading integrated goods and services tax (IGST) over a five-year period until FY22, as per reports.

According to Mint, Infosys set up branch offices abroad to conduct business and included the expenses it incurred for these overseas branches as part of its export invoice from India.

As tech major Infosys creates overseas branches to service clients as part of its agreement with the clients, those branches and the company are each treated as ‘distinct persons’ under the IGST Act, said DGGI, the law enforcement agency under the Ministry of Finance responsible for fighting tax evasion in the country.

Infosys is being investigated for ‘non-payment of IGST on import of services as a recipient of services’, the DGGI added.

Infosys said that the company believes that as per regulations, GST is not applicable on these expenses.

"Additionally, as per a recent circular (circular number 210/4/2024 dated June 26, 2024) 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," it said.

The tech giant said GST payments are eligible for credit or refund against the export of IT services and that it has responded to the notice.

"Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter," it added.