Reimbursement by Foreign Company to Indian Liaison Office not Taxable under CGST Act

The Advance Ruling Authority held that the reimbursement of expenses and salary by the foreign company to the liaison office in India does not amount to a supply of services under the CGST Act. The liaison office is not mandated to register under GST and is not obligated to pay GST on the reimbursements received. This decision was based on the liaison office's operational framework, its function as a communication channel, and adherence to RBI guidelines.

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Issues:
1. Whether the reimbursement of expenses and salary paid by a foreign company to its liaison office in India constitutes a supply of services under the CGST Act, 2017.
2. Whether the liaison office is required to register under GST.
3. Whether the liaison office is liable to pay CGST/SGST/IGST on reimbursements received from the foreign company.

Analysis:

Issue 1: Reimbursement of Expenses and Salary
The applicant, a liaison office in India, operates as per RBI conditions without charging any consideration for its services. The reimbursement of expenses and salary by the foreign company does not amount to a supply under the CGST Act as no consideration is charged. The liaison office acts as a communication channel and does not engage in business activities independently. The reimbursement is not for services rendered but for operational expenses, hence not taxable.

Issue 2: Registration Requirement
The liaison office is not required to register under GST as it does not engage in taxable supplies. It acts solely as an extension of the foreign company for communication purposes, following RBI guidelines. The office does not have an independent legal existence and does not conduct business activities beyond the liaison role, as specified by RBI.

Issue 3: Liability to Pay GST on Reimbursements
Since the liaison office and the foreign company are not considered separate entities, there is no flow of services between them. The reimbursement of expenses is not a consideration for services provided, and no GST is applicable on such transactions. The activities of the liaison office do not fall under the purview of taxable supplies, and hence, no GST is payable on reimbursements.

Conclusion:
The Advance Ruling Authority determined that the reimbursement of expenses and salary by the foreign company to the liaison office in India does not constitute a supply of services under the CGST Act. The liaison office is not required to register under GST and is not liable to pay GST on reimbursements received. This ruling is based on the operational structure of the liaison office, its role as a communication channel, and compliance with RBI guidelines.

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