Infosys has reported that it has received notification from Karnataka State Authorities dropping the 'pre-show cause' notice for a GST claim. Instead, the authorities have instructed Infosys to provide an additional answer to the central body, the Directorate General of GST Intelligence (DGGI).
The modification was announced in an exchange filing on Thursday. Following the announcement, Infosys shares were down 1% in early trade on Friday.
This comes a day after India's second-largest IT services business reported that the Karnataka GST authorities had issued a Rs 32,403 crore notice for services rendered by the company's abroad operations during a five-year period beginning in 2017.
Infosys stated that these costs should not be subject to GST.
In its filing, Infosys stated: "...the Company has also received a pre-show cause notice from the Director General of GST Intelligence on the same matter and is in the process of responding to the same." The business also referenced a recent circular from the Central Board of Indirect Taxes and Customs, which is consistent with GST Council guidelines and states that services delivered by foreign operations to Indian entities are not subject to GST.
Infosys claims that GST payments can be credited or refunded against the export of IT services. "Infosys has paid all its GST dues and is fully in compliance with central and state regulations on this matter," according to the business.
According to reports, the GST authorities' notification to Infosys stated: "In lieu of receiving supplies from overseas branch offices, the Company has paid consideration to the branch offices in the form of overseas branch expenses." Hence, M/s Infosys Ltd, Bengaluru is obliged to pay IGST under reverse charge mechanism on supplies received from branches situated outside India to the tune of Rs 32,403.46 crores from 2017-18 (July 2017 onwards) to 2021-22."
The Directorate General of GST Intelligence in Bengaluru said that Infosys failed to pay the Integrated GST (IGST) on the import of services as a receiver. It stated that Infosys included expenditures incurred by its overseas offices in export invoices without accounting for IGST via the reverse charge method.
The tax demand, which equals more than a year's earnings for Infosys, is substantial. Infosys' net profit increased 7.1% year on year to Rs 6,368 crore in the June quarter, while operating revenue increased 3.6% to Rs 39,315 crore.
