DGGI Karnataka Withdraws GST Demand Worth INR 32,400 Cr to Infosys

The Karnataka State authorities in the Rs 32,400 crore Goods and Services Tax (GST) demand on Infosys, have withdrawn the pre-show cause notice to the company.

In a regulatory filing, the company said: “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 the Directorate General of GST Intelligence (DGGI) central authority on this matter.”

The Directorate General of GST Intelligence (DGGI) sent a notice to Infosys on July 30 for the non-payment of Integrated Goods and Services Tax (IGST) on import services as the recipient of services.

As per the notice from DGGI, Infosys is obligated to pay IGST under the reverse charge mechanism on the supplies obtained from the branches located outside India to the tune of Rs 32,403.46 crore for the period 2017-18 (July 2017 onwards) to 2021-22.

DGGI’s action has been assailed by the industry and tax experts.

Tech industry body Nasscom asked for clarification from the Union finance ministry on the 32,000 crore GST demand notice served on the second-largest IT services company of India Infosys, alleging that it shows a deficiency of understanding of the industry’s operating model.

Nasscom issued a statement in support of the IT firm after the reports of the GST notice issuance before Infosys.

It read, “…reflects a lack of understanding of the industry’s operating model. This is an industry-wide issue, and multiple companies are facing avoidable litigation, uncertainty, and concerns from investors and customers.”

The Nasscom issue at hand concerned the applicability of GST through the RCM (Reverse Charge Mechanism).

The GST enforcement authorities have been issuing notices for payment by the Indian head office before its foreign branches, even in cases where no service is provided between the head office and the foreign branch for this RCM. This seems to be an oversight, as it does not constitute an ‘import of service’ by the head office from the branch.