MUMBAI: In a statement that shocked the industry Software and IT services major, Infosys Ltd issued a statement to the stock exchanges late on Wednesday saying that the 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. 

Infosys also said that the Company believed that as per regulations, GST is not applicable on these expenses and as per a recent Circular of 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.  

On Saturday in another exchange filing, Infosys said that after it received and responded to a pre-show cause notice issued by The Directorate General of Goods and Services Tax Intelligence (DGGI) for the period July 2017 to March 2022.  it has been given a tax relief of Rs 3,898 crore for the financial year 2017-18.

The latest on the issues comes after the Karnataka state GST body withdrew the Rs 32,403 crore notice to the IT giant for unpaid integrated GST (IGST) under the reverse charge mechanism (RCM) for services availed from its overseas branches from 2017 to 2022. A report in the Business Standard said that the notices served for the financial years 2018-19, 2019-20, 2020-21, and 2021-22 didn't get any mention, and the GST demand raised for 2017-18 is also getting time-barred.

The notice elicited strong reactions from across the IT industry, former Infosys Chief Finance Officer Mohandas Pai said that this is tax terrorism at its worst. While asking for the immediate intervention of the Finance Ministry, he told Moneycontrol, “Such tax terrorism impacts investment into India in a big way.” 

Reacting to the notice, industry body the National Association of Software and Service Companies (Nasscom) asked the government to clarify its stand. Nasscom said that the latest notice highlights the lack of understanding by the government of the industry model.

Nasscom said that reports of a GST demand of over Rs 320 billion (Rs 32,403 crore) reflect 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,” it said without naming Infosys.