2018 (10) TMI 1315 - AAR - GST

Liaison office of Takko Holding GmbH in India found not liable for GST; activities not considered supply under CGST and SGST

In Re : M/s. Takko Holding GmbH

The liaison office of Takko Holding GmbH in India was found not liable to pay GST as its activities did not involve consideration and complied with RBI ... Levy of GST - Supply of services or not - activity of Liaison office - concept of distinct person and related person. - Whether liaison office is liable to pay GST? - Held that:- The applicant/liaison office is working as per the terms and conditions stipulated by RBI and the reimbursement of expenses & salary of employees is paid by Mls Takko Holding GmbH to the liaison office. No consideration for any activity is being charged by the liaison office and the liaison office does not have any business activities of its own as specified by RBI conditions. Further, Schedule I of CGST Act specifies that supply of services between related parties or distinct persons as per Section 25, even without consideration, constitute a supply. Takko is acting as an extension of the German Office in its procurement activities from suppliers in India as has been spelt out in the RBI permission letter. Hence, they are neither related nor distinct persons, but are in fact working as employees of the foreign office. Accordingly, none of the liaison activities of Takko is covered under the definition of supply. Hence, Takko would not be a supplier under CGST /SGST Act and hence is not required to obtain registration under Section 22 of CGST /SGST Act or pay CGST, SGST or IGST as applicable. Ruling:- The liaison activities being undertaken by the applicant when strictly in line with condition specified by RBI permission letter do not amount to supply under CGST and SGST Act. The Applicant is not liable to pay CGST, SGST or IGST, as applicable. The Applicant is not required to get itself Registered under GST for the liaison activities. Issues:1. Liability of a liaison office to pay GST2. Requirement of registration for a liaison office under the GST Act3. Determination if the activities of a liaison office constitute a supply of servicesAnalysis:Issue 1: Liability of a liaison office to pay GSTThe case involved Takko Holding GmbH, a German company with a liaison office in India. The applicant sought an advance ruling on whether the liaison office is liable to pay GST. The liaison office's activities included acting as a communication channel between the parent company in Germany and Indian suppliers. The liaison office did not receive consideration for its activities, and all expenses were met by the German office. The liaison office was strictly prohibited from engaging in any trading, commercial, or industrial activities. The ruling clarified that since the liaison activities did not involve consideration and were in line with RBI conditions, they did not amount to a supply under the CGST and SGST Act. Therefore, the liaison office was not required to pay CGST, SGST, or IGST.Issue 2: Requirement of registration for a liaison office under the GST ActThe ruling also addressed whether the liaison office was required to register under the GST Act. It was established that since the liaison activities did not constitute a supply, the applicant was not obligated to register under the GST for these activities. The liaison office's operations were limited to communication and coordination between the parent company and Indian suppliers, with no independent business activities or income generation.Issue 3: Determination if the activities of a liaison office constitute a supply of servicesThe ruling further examined whether the activities of the liaison office amounted to a supply of services under the CGST Act. It was found that the liaison office, acting as an extension of the German office, did not fall under the definition of supply as per the CGST Act. The activities of the liaison office were deemed to be in compliance with the RBI conditions and did not involve any consideration. As a result, the ruling concluded that the liaison activities did not constitute a supply under the CGST and SGST Act, and the applicant was not required to obtain GST registration or pay GST.In conclusion, the ruling clarified that the liaison activities conducted by the applicant, as per the conditions specified by the RBI permission letter, did not amount to a supply under the CGST and SGST Act. Therefore, the applicant was not liable to pay GST or register under the GST Act for these activities.