Karnataka state authorities have withdrawn the pre-show cause notice issued to Infosys just a day earlier. The company has been directed to submit further responses to the Directorate General of Goods and Services Tax Intelligence (DGGI) on the matter, following a tax demand for alleged evasion amounting to over Rs 32,000 crore.
India’s second-largest IT firm Infosys had maintained that it is in full compliance with all GST regulations, disputing the applicability of GST on the expenses cited by DGGI. “Infosys has paid all its GST dues and is fully in compliance with the central and state regulations on this matter,” it had said in a statement.
The unexpected tax demand has raised concerns, especially given Infosys’ reputation for strong governance and compliance.
Reacting sharply to the situation, former Infosys Chief Financial Officer Mohandas Pai condemned the tax demand as “tax terrorism” and called for immediate intervention by the Finance Ministry. Pai warned that such actions could significantly impact investment in India, reflecting broader apprehensions within the business community regarding high-profile tax disputes.
Meanwhile, the apex body representing the IT industry, also weighed in on the issue. While not naming Infosys directly, nasscom mentioned the importance of a supportive policy environment for accelerating services exports and attracting global tech investments to India in a statement. The organisation stressed that GST enforcement should be consistent with government circulars to prevent uncertainty and adverse perceptions about doing business in India.
“This is not a new problem and courts have been ruling in favour of the industry in these cases. This issue was even addressed during the erstwhile service tax law, where favourable judgments were delivered by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Karnataka High Court has stayed a show cause notice in a similar case for a large IT company,” said the trade body.
The circular from nasscom stated that the deemed open market value for such transactions would be NIL if full input tax credit is available. Also, nasscom called for proper implementation of this circular to mitigate litigation risks and support the industry's growth and compliance efforts.
