JUNE 11, 2025

The Infosys Saga - Genuinely Shocked Taxpayer?

By Vijay Kumar

I am no fan of Infosys, especially the 70 hours a week work. (Actually, I used to work more than 70 hours a week - with pleasure and no pressure).

After a year-long rollercoaster of paperwork battles and legal manoeuvring, DGGI has officially freed Infosys from a Rs.32,403 crore GST liability - twist of a financial thriller.

What GST did to Infosys remains a mystery rivalling a complex tax loophole. One thing is for sure-this victory wasn't won by clocking in 70-hour workweeks debugging tax rules.

Meanwhile, we are still blinking at the numbers, wondering if tax laws have started behaving like quantum physics-simultaneously existing and not existing!

As Infosys dusts off its legal battle wounds, who's next for the GST spotlight? Hopefully, the next big tax saga has fewer surprises, fewer headaches, and perhaps… fewer digits in the disputed amount!

Reports from "The Hindu" Newspaper

August 01, 2024: Infosys slapped with Rs.32,403 crore GST notice for overseas expenses.

GST authorities have slapped a Rs.32,403 crore notice on Infosys for services availed by the company from its overseas branches for five years starting in 2017.

The Bengaluru-headquartered IT firm said Karnataka State GST authorities have issued a pre-show cause notice for payment of GST of Rs.32,403 crore for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited and added that the company has responded to the pre-show cause notice.

The GST demand is also bound to evoke interest as Infosys manages the Goods and Services Tax Network (GSTN) portal.

August 01, 2024: NASSCOM defends Infosys, says Rs.32,000-cr. GST notice shows lack of understanding of industry model.

NASSCOM on Thursday defended Infosys, which is facing a Rs.32,000-crore GST notice, saying the move reflected 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 in a statement.

According to NASSCOM, the issue at hand involves 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.

According to the apex industry body, circular No. 210/4/2024, dated June 26, 2024, states that for the import of services, the deemed open market value of such transactions will be nil if full input tax credit is available. "We will continue to pursue with the government on the need for proper implementation of the government circular by the enforcement authorities," it stated.

Letters addressed by Infosys to BSE LIMITED, NATIONAL STOCK EXCHANGE OF INDIA LIMITED and NEW YORK STOCK EXCHANGE:

July 31, 2024

This is with respect to news articles published earlier today on non- payment of GST in relation to expenses incurred by the overseas branches of the Company.

The Company would like to clarify on this matter:

Karnataka State GST authorities have issued a pre-show cause notice for payment of GST of Rs. 32,403 crores for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited. The Company has responded to the pre-show cause notice. Subsequent to the publication of the news articles 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.

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 is also important to note that the GST payments are eligible for credit or refund against export of IT services.

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

August 1, 2024

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.

August 3, 2024

The Company had received and responded to a pre-show cause notice issued by DGGI for the period July 2017 to March 2022. The Company has now received a communication from DGGI closing the pre-show cause notice proceedings for the financial year 2017-2018. The GST amount as per the pre-show cause notice for this period was Rs. 3,898 Crs.

June 6, 2025 (Last Friday)

In continuation to our earlier communications on July 31, 2024, August 1, 2024, and August 3, 2024, on GST, this is to inform that the Company has today received a communication from the Director General of GST Intelligence ('DGGI') closing the pre-show cause notice proceedings for the financial years 2018-19 to 2021-22. It may be noted that the Company had received and responded to a pre-show cause notice issued by DGGI for the period July 2017 to March 2022 on the issue of non-payment of IGST under Reverse Charge Mechanism. The GST amount as per the pre-show cause notice for this period was Rs. 32,403 Crs. The Company had on August 3, 2024, received a communication from DGGI closing the pre-show cause notice proceedings for the financial year 2017-2018. With the receipt of today's communication from DGGI, this matter stands closed.

What is this all about?

Please see excerpts from our COB(WEB) story on AUGUST 22, 2024 - Infosys saga - 'Smart' Karnataka made DGGI catch falling knife!

Like all other IT companies, Infosys has a network of overseas subsidiaries and also branch offices. While executing an overseas service contract, it involves its overseas subsidiaries and branches for on-site service delivery. In the case of subsidiaries, it receives invoices and pays GST under RCM and takes credit. In the case of overseas branches, it follows a different practice - no invoice, only book entry of expenditure incurred on them. In the year 2020, the Bangalore unit of DGGI rolled out a probe for not paying IGST on import of services from branch offices which are distinct entities as per Section 8 of the IGST Act, 2017. The period covered was FY 2017-18 to FY 2021-22. In February 2024, the DGGI came to know that the Karnataka State GST authorities had already investigated a similar case of non-payment of IGST on import of services under RCM and a show cause notice was also issued in May 2023. To avoid duplication of investigation, the DGGI transferred the case to the State authorities in May 2024, along with all the vital documents. On July 24 2024 the State authorities sought more information from the DGGI as the case was going to be time-barred on 5th August. When the DGGI officers visited the State office to hand over the information sought, they came to know that the State authorities had taken a decision to lob back the case to the DGGI. And they did it on 30th July. For the DGGI, it was a case of catching the falling knife! Since the time-barring deadline was inching closer, the DGGI issued the DRC-01A which was the fodder for sensational headlines in all newspapers. On 1st August, DGGI came to know that the State authorities had already issued DRC-01A on 23rd July but concealed that information which resulted in a serious goof-up of issuance of two DRC-01A in the same case! Realising the faux pas, the State authorities quickly withdrew their notice and that made another bout of newspaper headlines, perplexing the mandarins in the North Block!

The incident of double notices, of course, provided incendiary meatballs to all newspapers to write editorials, lamenting the GST authorities and describing it as 'tax terrorism'!

What is of greater import in this context is that this case demonstrates poor coordination between the State and Central authorities. Strangely, when the draft copy of Circular 210 was in circulation for months and the same was being discussed in the GST Law Committee where the State of Karnataka was also represented by a senior officer, why did the State authorities issue DRC-01A on 23rd July when the Circular 210 was issued on 26th June? When the bone of contention was covered by the pertinent Circular and the Karnataka officer was a party to it, why was the proposal to issue pre-notice approved? Secondly, why was it put in a rabbit hole, and not disclosed to the DGGI, which embarrassed itself by issuing another DRC-01A! I guess that it was perhaps the fear of dropping a huge demand! Whatever it was, the lesson to be learnt from this case by the CBIC is that they need to wake up from their cozy slumber and build a robust system of keeping track of such goof-prone actions! Alas! The tracker built by the Infosys for the CBIC either let down the DGGI or the agency failed to properly check the uploaded DRC-01A in an unholy haste? Whatever it was, the irony is that this case earned a bulky bout of infamy for the GST. And the CBIC needs to do more pro-active monitoring of field cases which are going to be covered by issuance of a clarificatory circular. If a decision has been taken by the Council and the CBIC is aware of its ramifications on the on-going investigations, the issuance of notices should be abandoned to avoid making headlines which sully its image among the stakeholders. Another lesson needs to be learnt to plug pain-triggering enzymes is - CBIC should insist on better coordination with the States and should also stop taking over cases closer to time-barring deadlines. Ideally, an IT-based system should be in place so that reliance on manual communication is minimised!

DRC-01A = Intimation of tax ascertained as being payable.

The DGGI has dropped the case even before a proper Show Cause Notice was issued. Obviously, there was not even a prima facie case to issue a Show Cause Notice.

In Infosys vs. GST cricket match, Infosys was down five wickets in the first over-only to miraculously chase 32,403 runs and win!