2021 (2) TMI 1164 - AAAR - GST

Appeal allowed, liaison office not liable for GST as per Appellate Authority ruling.

The appeal was allowed, and the advance ruling was set aside. The Appellate Authority concluded that the activities of the liaison office do not amount to ... Definition of 'supply' under GST - self-supply not a 'supply' under GST - Schedule I clause 2 - supply between related or distinct persons without consideration - concept of 'person' under the CGST Act - requirement of registration for taxable supply under GST - FEMA/RBI regulation on liaison officesDefinition of 'supply' under GST - FEMA/RBI regulation on liaison offices - Activities of the liaison office amount to supply of services - HELD THAT: - The liability under GST arises only when an activity qualifies as a 'supply'-i.e., made by a person, for a consideration, in the course or furtherance of business. The RBI/FEMA permission permits the liaison office to undertake only specified liaison activities, prohibits earning income or charging fees in India and mandates that the office be maintained out of inward remittances from the head office. The inward remittances received to meet local expenses cannot be treated as consideration for liaison activities. Applying these parameters, the liaison office in India does not perform activities for consideration in the course or furtherance of business and therefore its activities do not fall within Section 7(1)(a) of the CGST Act. [Paras 12]The activities of the liaison office do not amount to a 'supply' of services under GST.Schedule I clause 2 - supply between related or distinct persons without consideration - concept of 'person' under the CGST Act - self-supply not a 'supply' under GST - Whether liaison office and head office are related/distinct persons attracting Schedule I clause 2 - HELD THAT: - Schedule I covers certain activities without consideration between related or distinct persons. That doctrine presupposes the existence of two 'persons' as defined under the CGST Act. The parent company in Germany is a 'person', but the liaison office is not a separate legal entity in India; under the Companies Act and the registration records the liaison office is a geographical extension of the foreign company and not an artificial juridical person. Because there is only one legal entity for GST purposes, the liaison office cannot be treated as a related or distinct person vis-a -vis the head office. Consequently the liaison activity constitutes service to oneself, which is not a 'supply' under GST and does not fall within Schedule I clause 2. [Paras 14, 15, 16]The liaison office is not a separate or related person to the head office for the purposes of Schedule I; its activities amount to self-supply and are not captured by Schedule I clause 2.Requirement of registration for taxable supply under GST - definition of 'supply' under GST - Whether the liaison office is required to obtain GST registration and liable to pay GST - HELD THAT: - Registration under GST is mandated for persons making taxable supplies. Having concluded that the liaison office's activities do not constitute a 'supply' (and therefore are not 'taxable supplies'), there is no taxable turnover that triggers the obligation to register or to remit GST. The question of distinct establishments or separate-person registration does not arise once absence of supply is established. [Paras 17]The liaison office is not required to be registered under GST and is not liable to pay GST.Final Conclusion: The advance ruling under challenge is set aside: the liaison office's activities do not amount to supply of services, it is not required to obtain GST registration, and it is not liable to pay GST in respect of the liaison activities carried out under the RBI/FEMA permission. Issues Involved:1. Whether the activities of a liaison office amount to supply of services.2. Whether the liaison office is required to be registered under the CGST Act.3. Whether the liaison office is liable to pay GST.Detailed Analysis:1. Activities of the Liaison Office as Supply of Services:The core issue is whether the activities of the Liaison Office (LO) in India constitute a supply of services under GST law. The LO, established by a foreign entity under RBI permission, is restricted to non-commercial activities like representing the parent company, promoting trade, and acting as a communication channel. The LO operates solely on funds remitted from the head office and does not generate income or engage in trade/commercial activities in India. The RBI and FEMA regulations prohibit the LO from earning any income or charging fees for its activities. The inward remittances received by the LO are not considered as consideration for any service, thus not fitting the definition of 'supply' under Section 7(1)(a) of the CGST Act. The LO's activities are deemed as services rendered to itself, which do not qualify as 'supply' under GST.2. Registration Requirement under CGST Act:The LO is not required to register under GST as it does not engage in any taxable supply of goods or services. The CGST Act mandates registration for entities making taxable supplies exceeding a certain turnover, but since the LO's activities do not constitute a 'supply', this requirement does not apply. The LO is an extension of the parent company and not a separate legal entity. Therefore, it does not meet the criteria for registration under Section 22 or 24 of the CGST Act.3. Liability to Pay GST:As the LO's activities do not amount to a 'supply' under GST, it is not liable to pay GST. The LO does not engage in any business or commercial activities, and the funds received from the head office are for operational expenses, not for any services rendered. Consequently, there is no taxable event triggering GST liability.Conclusion:The appeal was allowed, and the advance ruling was set aside. The Appellate Authority concluded that:1. The activities of the liaison office do not amount to the supply of services.2. The liaison office is not required to be registered under GST.3. The liaison office is not liable to pay GST.The decision emphasizes that the LO's operations, strictly adhering to RBI guidelines and not generating income, do not fall within the ambit of 'supply' under GST law.