2018 (7) TMI 883 - AAR - GST

Reimbursement to Liaison Office in India Not Liable for GST

The Authority for Advance Ruling (AAR) determined that the reimbursement of expenses and salary by M/s Habufa Meubelen B.V. to its liaison office in India ... Supply of services - consideration - reimbursement of expenses - supply to self / not distinct persons - registration under GST - place of supplySupply of services - consideration - reimbursement of expenses - supply to self / not distinct persons - Reimbursement of expenses and salary by the Head Office to the liaison office is liable to GST as supply of services - HELD THAT: - The Authority found that the liaison office was established with RBI permission and is prohibited from undertaking trading or entering into contracts in its own name. The sums received from the Head Office are funds to meet salary and operational expenses and no separate consideration is charged by the liaison office. The liaison office has no independent revenue or clients and is dependent on the Head Office; consequently, the Head Office and the liaison office are not to be treated as distinct persons for the purposes of levy. On these facts, there is no flow of services inter se (one cannot provide service to oneself) and the receipts characterised as reimbursements do not constitute consideration for supply of services under the GST provisions. Therefore such reimbursements are not exigible to GST when the liaison office functions strictly within the stated conditions and does not render consultancy or other services with or without consideration. [Paras 6]When the liaison office operates as per the stated RBI-imposed conditions and does not charge consideration, reimbursement of expenses and salary by the Head Office is not liable to GST.Registration under GST - supply of services - reimbursement of expenses - Requirement for the liaison office to obtain registration under GST - HELD THAT: - Registration under GST is triggered by making taxable supplies or meeting turnover thresholds for suppliers. The Authority held that because the liaison office does not make taxable supplies-its receipts are reimbursements not constituting consideration for services-and it is prohibited from commercial activities and from entering into contracts in its own name, there are no taxable supplies by the liaison office. Consequently the liaison office is not required to obtain registration under the GST Act. [Paras 6]The liaison office is not required to register under GST as it does not make taxable supplies in the circumstances found.Place of supply - supply of services - consideration - Place of supply of the service where reimbursement is treated as consideration - HELD THAT: - The application sought, as an alternative question, the place of supply if the reimbursements were to be treated as consideration for services. The Authority's ruling rests on the factual conclusion that no consideration exists and that reimbursements do not amount to taxable supply. The Authority did not undertake a determination of the place of supply because the primary factual and legal threshold-existence of a taxable supply with consideration-was not satisfied. Accordingly, the question of place of supply remains unadjudicated and would require fresh consideration if the factual position were otherwise.Not decided; the place of supply was not determined because reimbursements were held not to be consideration and no taxable supply was found.Final Conclusion: The Authority ruled that, on the facts found-where the liaison office is restricted by RBI conditions, does not charge consideration, and is dependent on the Head Office-the reimbursements of salary and expenses by the Head Office are not liable to GST and the liaison office need not register under GST; the question of place of supply was not decided as no taxable supply was found. Issues Involved:1. Whether the reimbursement of expenses and salary paid by M/s Habufa Meubelen B.V. (HO) to the liaison office established in India is liable to GST as a supply of service when no consideration for any services is charged/paid.2. Whether the applicant, i.e., the Liaison Office, is required to get registered under GST.3. If the reimbursement of expenses and salary claimed by the liaison office is considered a consideration towards a service, then what will be the place of supply of such serviceRs.Analysis:(A) Submission of Applicant:The applicant, M/s. Habufa Meubelen B.V. (HO), operates as a Liaison Office in India with specific conditions set by the RBI. The liaison office does not engage in trading, commercial, or industrial activities independently and is solely dependent on HO for funds. The expenses incurred by the liaison office are reimbursed by HO, and no separate consideration is charged for any services.(B) Issue for Determination:The questions before the Authority for Advance Ruling (AAR) include the liability of GST on reimbursement without consideration, the necessity of GST registration for the Liaison Office, and the place of supply for such services if considered.(C) Submission by the Applicant:The applicant argues that as per the CGST Act, for a transaction to be considered a supply liable to GST, there must be a flow of services with consideration. Since no separate consideration is charged, the reimbursement of expenses does not qualify as a supply of service. The liaison office is an extension of the HO and does not have independent existence or revenue.(D) Issues to be Decided:The key issues to be decided include the GST liability on reimbursement, the requirement of GST registration for the Liaison Office, and the place of supply if reimbursement is deemed a consideration for services.(E) Personal Hearing:A personal hearing was conducted where the applicant reiterated their submissions, emphasizing the absence of consideration for services rendered by the liaison office.(F) Findings:The AAR concludes that since the liaison office does not provide services independently, operates under strict RBI guidelines, and is entirely funded by HO without charging any separate consideration, the reimbursement of expenses and salary is not liable to GST. The liaison office is not required to register under GST as it does not engage in taxable supplies.In summary, the AAR ruled that if the liaison office in India does not provide services directly or indirectly with consideration and does not have significant commitment powers, then the reimbursement of expenses and salary by HO to the Liaison Office is not subject to GST, and the applicant is not required to register under GST.