2020 (10) TMI 809 - AAR - GST

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

The liaison office's activities were deemed to constitute a supply of services under the CGST Act, 2017. It was ruled that the liaison office must be ... Classification of supply - supply of services or not - Activities of a liaison office - requirement of registration under CGST Act, 2017 - liability of liaison office to pay GST - HELD THAT:- The Applicant’s HO is incorporated in Germany and is engaged in the business of promoting applied research. The HO has established their LO in Bangalore, India which is acting as an extended arm of the HO to carry out activities that are permitted by RBI. The RBI has stipulated certain conditions for the establishment of liaison office in India, which includes among other things, that LO will not generate income in India and will not engage in any trade/commercial activity, will represent in India the Parent Company, will promote technical/ financial collaborations and act as communication channel between the Parent Company and the Indian Company, the entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels and it will not have any signing / commitment powers, except than those which are required for normal functioning of the office, on behalf of the HO/ Parent Company - The term ‘Liaison Office’ is not defined under the CGST Act 2017. However it is defined under Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016 and as per the said definition, primarily it is a place of business. The applicant has claimed that they are not “person” as per Section 2 (84) of CGST Act, 2017. However we find that the definition is very wide in scope and covers every artificial juridical person, not falling within any of the above; (Section 2 (84) (n) of CGST Act, 201’7. A juridical person is a non human legal entity recognized by law with duties and rights - the applicant falls under the definition of “person” in terms of Section 2 (84) of CGST Act, 2017. Further, Section 2(17)(a) of the CGST Act 2017 stipulates that “business” includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. Further “business” also includes any activity or transaction in connection with or incidental or ancillary to sub-clause (a), in terms of Section 2(17)(b) of the CGST Act 2017. The activities performed by the applicant falls under the scope of supply under Section 7 of CGST Act, 2017 read with schedule I of CGST Act, 2017 as it is in relation to furtherance of business. The applicant is involved in business and promotes the business, in India, of their HO situated outside India, in the course of business. Thus the activities of the applicant squarely fit to be treated as supply in terms of Section 7(1)(c) of the of CGST Act 2017, even in the absence of consideration. In the instant case the applicant has representational office i.e. LO in Bangalore, India and hence the applicant has an establishment in India. Further the applicant’s head office is outside India and hence the applicant’s head office has an establishment outside India. Thus the applicant (LO) and their head office (HO) shall be treated as establishments of distinct persons, in terms of Section 8. Therefore the applicant (LO) and their head office (HO) are distinct persons and the activities performed by them can’t be called export of services. There is no doubt that the applicant is facilitating supply between the HO and Indian customers. They have a mandate from RBI for this purpose. Further, they are not making any supply on their own, which anyway is a restriction placed upon them by RBI. Their contention that they are not “person” has already been dealt in the above para. We find that they are a distinct legal entity and are aptly covered under the definition of intermediary as per Section 2 (13) of IGST Act, 2017. Lastly, in regard to the submissions made by the applicant in respect of valuation, we observe that Rule 28 to Rule 31 of the CGST Rules, 2017 have to be resorted for the purpose of determining tax liability. Need to take registration - HELD THAT:- The supply of services by the applicant amount to inter-state supply of services in terms of Section 7(5) of the IGST Act 2017. Further persons making any inter-state taxable supply shall be required to be registered compulsorily in terms of Section 24 of the CGST Act 2017 - applicant (LO) is required to be registered under CGST Act 2017 - applicant (LO) are liable to pay GST if the place of supply of services is India. 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.