2020 (10) TMI 809 - AAR - GST

Liaison office activities classified as taxable supply under CGST Act, 2017. Registration & GST liability required in India.

In Re: M/s. Fraunhofer-Gessellschaft Zur Forderung der angewwandten Forschung

In Re: M/s. Fraunhofer-Gessellschaft Zur Forderung der angewwandten Forschung - 2020 (42) G.S.T.L. 384 (A. A. R. - GST - Kar.) , [2021] 85 G S.T.R. 122 ... Issues Involved:1. Whether the activities of a liaison office amount to supply of services.2. Whether a liaison office is required to be registered under the CGST Act, 2017.3. Whether the liaison office is liable to pay GST.Detailed Analysis:1. Whether the activities of a liaison office amount to supply of services:- Core Issue: The main issue is whether the activities undertaken by the applicant, in line with the conditions specified by the RBI, amount to supply under the CGST Act, 2017.- Applicant's Argument: The applicant contends that the liaison office (LO) is merely an extended arm of the Head Office (HO) and does not engage in any trade/commercial activity or generate income in India. The LO acts on behalf of the HO and performs no separate functions other than those specified and approved by the RBI.- Authority's Observation: The authority noted that the LO is recognized by the RBI and conferred with certain duties and restrictions. The LO falls under the definition of 'person' as per Section 2(84) of the CGST Act, 2017. The activities of the LO are ancillary to the business activities of the HO and fall under Section 2(17)(b) of the CGST Act, 2017.- Conclusion: The activities performed by the LO fall under the scope of supply under Section 7 of the CGST Act, 2017, read with Schedule I, as they are in relation to the furtherance of business. The LO and HO are deemed to be related persons, and the activities are treated as supply even in the absence of consideration.2. Whether a liaison office is required to be registered under the CGST Act, 2017:- Applicant's Argument: The applicant argued that since the LO does not engage in any business activity or charge any consideration, it should not be required to register under the CGST Act, 2017.- Authority's Observation: The authority noted that the supply of services by the LO amounts to inter-state supply of services in terms of Section 7(5) of the IGST Act, 2017. Persons making any inter-state taxable supply are required to be registered compulsorily in terms of Section 24 of the CGST Act, 2017.- Conclusion: The LO is required to be registered under the CGST Act, 2017.3. Whether the liaison office is liable to pay GST:- Applicant's Argument: The applicant contended that the LO is not liable to pay GST as it does not engage in any business activity or generate any income in India. The LO is maintained by inward remittances from the HO to meet expenses.- Authority's Observation: The authority examined whether the activities are covered under zero-rated supply of services. It was noted that the LO and HO are distinct persons as per Section 8 of the IGST Act, 2017, and the activities performed by the LO cannot be called export of services. The LO is facilitating supply between the HO and Indian customers and falls under the definition of 'intermediary' as per Section 2(13) of the IGST Act, 2017.- Conclusion: The LO is liable to pay GST if the place of supply of services is in India. The valuation for determining tax liability should be done as per Rule 28 to Rule 31 of the CGST Rules, 2017.Ruling:1. The liaison activities undertaken by the LO in line with the conditions specified by the RBI amount to supply under Section 7(1)(c) of the CGST Act, 2017.2. The LO is required to be registered under the CGST Act, 2017.3. The LO is liable to pay GST if the place of supply of services is in India.