Ineligible ITC refunds? Infosys issued Rs 415 crore showcause notice by DGGI; what the matter is about – The Times of India

Infosys, India’s second-largest IT services exporter, has been issued a showcause notice over alleged ineligible refunds. The GST Intelligence wing (DGGI) has reportedly served Infosys with a notice questioning their claim of input tax credit (ITC) refunds amounting to Rs 414.88 crore for service exports between 2018-19 and 2023-24.According to an ET report, the investigation was initiated based on information indicating that the technology giant had incorporated services delivered by its international offices and external contractors within its zero-rated export turnover from India, resulting in excessive refund claims under Section 54 of the Central GST Act, 2017.

Infosys served notice by DGGI

The DGGI’s investigation revealed that Infosys, which derives nearly 97% of its revenue from exports, submitted numerous refund applications across various GST registrations during this period. The organisation classified these transactions as outward taxable supplies (zero-rated) and sought refunds of accumulated ITC under Rule 89 of the CGST Rules, 2017, in conjunction with Section 20 of the IGST Act, 2017.In the GST framework, zero-rated supply denotes goods or services with a 0% tax rate. Businesses offering zero-rated supplies do not levy GST on their outward transactions but retain eligibility for ITC refunds on input costs, ensuring a tax-free supply chain.The ET report indicates that DGGI commenced their investigation based on confidential information suggesting Infosys had sought improper ITC refunds for services not genuinely exported. The questionable services reportedly involved work conducted by foreign branches and subcontractors for overseas client assignments.The investigation revealed that within Infosys, work performed at client locations overseas is designated as ‘Onsite’, whilst tasks completed at Indian development facilities are termed ‘Offshore’. DGGI contends that Infosys incorporated services delivered by its international branches and subcontractors into its export figures, thereby overstating refund claims on zero-rated supplies without IGST payment under the letter of undertaking scheme.