IT major Infosys admitted late Wednesday evening that it has received pre-show cause notices for GST dues of over ₹32,000 crore. The first notice was issued by the Karnataka state GST department, while the second was issued by the Director General of GST Intelligence (DGGI).

“Karnataka State GST authorities have issued a pre-show cause notice for payment of GST of ₹32,403 crores for the period July 2017 to March 2022 towards the expenses incurred by overseas branch offices of Infosys Limited,” the company said in a regulatory filing to the Stock Exchanges. Further, it said that it responded to the pre-show cause notice.

Also, it has received a pre-show cause notice from DGGI on the same matter, and the company is responding. “The Company believes that as per regulations, GST is not applicable on these expenses,” it said. Additionally, as per a recent circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on the recommendations of the GST Council, services provided by overseas branches to Indian entities 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,” the company said.

According to sources, the DGGI, in its show cause notice, said that as the company 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. Since, in lieu of receipt of supplies from overseas branch offices, the company has paid consideration to the branch offices in the form of overseas branch expenses. So, Infosys is liable to pay GST under the reverse charge mechanism on supplies from branches outside India, the source added.

Commenting on the latest development, Rajat Mohan, Executive Director, MOORE Singhi, said that the recent issuance of a ₹32,000 crore notice marks the largest ever issued to a single company by the GST authorities, highlighting significant issues within the department. This precedent-setting notice could lead to similar actions against other multinational companies, especially in the IT sector.

GST payment issues under the Reverse Charge Mechanism (RCM) are explicitly outlined in the statutes. The CBIC has recently issued a circular for further clarification. However, tax officers at the DGGI are complicating the matter unnecessarily and not following the proper chain of command.

“This issue is unlikely to be resolved quickly, as it will go through extensive processes of adjudication, appeals, and potentially a high court review. Alternatively, the GST Council might step in and issue a clarification, but this process could also take several months due to procedural requirements,” he said.

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