Karnataka authorities have withdrawn GST tax notice, says Infosys

In the Rs 32,400 crore Goods and Services Tax (GST) demand on Infosys, the Karnataka State authorities have withdrawn the pre-show cause notice to the company.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 further response to the Directorate General of GST Intelligence (DGGI) central authority on this matter.”

On Tuesday, July 30, the DGGI sent a notice to Infosys for non-payment of Integrated Goods and Services Tax (IGST) on import services as the recipient of services.

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

This action of DGGI has come under attack from industry and tax experts.

Tech industry body Nasscom has sought the Union finance ministry’s clarification on the ~32,000 crore GST demand notice served on India’s second-largest IT services company Infosys, alleging that it reflected a lack of understanding of the industry’s operating model.

In a statement issued Thursday, a day after the reports of the GST notice to Infosys came to the fore, Nasscom issued a statement in support of the IT firm.

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, concerns from investors and customers.”

Nasscom said that the issue at hand involved the applicability of GST through the reverse charge mechanism (RCM).

The GST enforcement authorities have been issuing notices for remittance by the Indian head office to its foreign branches for cases where there is no service between the head office and the foreign branch for this RCM, ignoring that this is not a case of ‘import of service’ by the head office from the branch.