Infosys Ltd, India’s second-largest IT services exporter, has come under scrutiny from the Directorate General of GST Intelligence (DGGI) over alleged irregularities in its input tax credit (ITC) refund claims. The company has reportedly received a show-cause notice for allegedly availing ineligible GST refunds worth Rs. 414.88 crore for service exports made during the financial years 2018–19 to 2023–24.
The DGGI’s Bengaluru Zonal Unit initiated an investigation after receiving intelligence inputs suggesting that Infosys may have included services rendered by its overseas branches and third-party contractors within its export turnover from India. These inclusions, the authorities allege, inflated the company’s zero-rated supply figures and consequently led to excess ITC refund claims under Section 54 of the Central GST Act, 2017.
Refunds Claimed Under Zero-Rated Supply Category
Infosys, which derives nearly 97% of its revenue from international markets, had filed multiple refund applications under various GST registrations. These applications were made under the zero-rated supply category — a provision that allows exporters to claim refunds of accumulated input tax credits on goods or services exported without payment of integrated GST (IGST) under a Letter of Undertaking (LUT).
Under GST law, zero-rated supplies refer to goods or services that are not taxed on output but still allow the supplier to claim input tax credit on the taxes paid on inputs and input services. The mechanism ensures that exports remain tax-free in line with the “destination-based consumption” principle of GST.
DGGI’s Findings and Allegations
The DGGI’s probe reportedly found that Infosys had, in its refund applications, considered certain services provided by its international offices and external vendors as part of its export turnover. The department contends that such services, though billed to clients abroad, were delivered by non-resident branches and contractors located outside India — and therefore cannot be classified as exports from India under GST law.
The investigation also noted that Infosys internally categorises its projects into “Offshore” and “Onsite” work — the former referring to tasks executed at its Indian development centres and the latter to work carried out at client sites overseas. Authorities allege that Infosys clubbed both categories while calculating its zero-rated export supplies, thereby inflating refund entitlements under Rule 89 of the CGST Rules, 2017, read with Section 20 of the IGST Act.
Potential Legal and Financial Implications
If proven, the DGGI’s allegations could result in recovery proceedings for the disputed refund amount, along with interest and penalties under Sections 73 or 74 of the CGST Act, depending on whether intent to evade tax is established. The development also raises questions about how multinational IT companies account for cross-border service delivery within India’s GST framework — a complex issue that often blurs the line between export of services and inter-branch transactions.
Infosys has yet to issue an official statement on the matter. The company’s response to the show-cause notice will determine whether the DGGI proceeds with adjudication or considers the explanations satisfactory.
This investigation comes at a time when tax authorities are tightening scrutiny over ITC refund claims, particularly in sectors with significant export turnover such as IT and ITeS. Industry experts suggest that the outcome of this case could set a crucial precedent for how service exports are treated under India’s GST regime.
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