TaxTMI 
TaxTMI 
2020 (10) TMI 809
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....d hence established their liaison office in Bangalore, India, (herein after referred to as "Applicant" or "Liaison office / LO "), under the permission of RBI vide FE.CO.FID/27803/10.97.856/2013-14 dated 11.06.2014, to act as an extended arm of the head office and to carry out the activities that are permitted by Reserve Bank of India. The UIN allotted by Reserve Bank of India is BGL014007856. In view of this the applicant sought advance ruling in respect of the following questions: i. Whether the Activities of a liaison office amount to supply of services? ii. Whether a liaison office is required to be registered under CGST Act, 2017? iii. Whether liaison office is liable to pay GST? 3. Admissibility of the application : The applicant filed the instant application as an unregistered person, in relation to the establishment of Liaison office in Bangalore, India. Further the applicant have sought advance ruling in respect of the questions on the issues covered under Section 97(2)(g), (f) 8v (e) of the CGST Act 2017 respectively and hence the application is admitted. 4. Applicant's statement of relevant facts: The applicant furnishes the following fac....
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....pt the proposed liaison work, the office will not undertake any other activity of trading, commercial or industrial nature nor shall it enter into any business contracts in its name without RBI permission. (iv) No commission/fees will be charged or any other remuneration received/ income earned by the office in India for the liaison activities/ services rendered by it or otherwise in India. (v) The entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels. (vi) The liaison office shall not borrow or lend money from/to any person in India without prior permission of Reserve Bank of India. (vii) It shall not acquire, hold (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India without obtaining permission by Reserve Bank of India. Under the Foreign Exchange Management Act (Acquisition and transfer) of immovable property in India. (ix) It shall furnish and submit the Annual Activity Certificate of the activities of the Liaison office from the Auditors at the end of 31st March and same needs to be s....
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.... to have clarity on certain issues under the CGST Act confirmation as to their understanding and the issue being covered under Section 97 of the CGST Act, 2017, the Applicant makes the present application to obtain the advance ruling on the following: (a) Whether the Activities of a liaison office amount to supply of services? (b) Whether a liaison office is required to be registered under CGST Act, 2017? (c) Whether liaison office is liable to pay GST? 5. Applicant's interpretation of law : The Applicant submits their interpretation of law as under: 5.1 The levy and collection of the CGST is governed by the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the 'CGST Act') and levy and collection of SGST is governed by Karnataka Goods and Services Tax Act (KGST), 2017 for the state of Karnataka & levy and collection of IGST is governed by Integrated Goods and Services Act, 2017 (hereinafter referred to as the 'IGST Act). Further, GST is a tax to be levied on supply of goods and/or services. Any transaction to be taxed under Section 9 of the CGST Act, 2017, first it should be covered within the scope of supply as stipulated in Sect....
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....nor distinct persons, but are in fact working as employees of the foreign office. Accordingly, activities undertaken by the Liaison office are not covered under the definition of supply. 5.7 Therefore, the liaison office situated in Bangalore, is nothing more than an extended arm of the Head office/HO and the liaison office performs no separate functions other than those specified and approved by the RBI. In other words, the liaison office acts on behalf of the Head office/HO for its customers in India. 5.8 Further, in the GST regime, the Authority for Advance ruling in the case of IN RE: TAKKO HOLDING GmbH 2018 (19) G.S.T.L. 692 (A.A.R. - GST) = 2018 (10) TMI 1315 - AUTHORITY FOR ADVANCE RULINGS, TAMIL NADU had held in a similar matter as under In the case at hand, Takko are working as the liaison Office of M/ s. Takko Holding GmbH, Germany with the prior permission of RBI. Liaison Activities include acting as communication channel between the parent company and Indian supplier of goods to parent company at Germany in terms of the procurement, order placement, quality checks, and technical support shipping of the Readymade garments. Takko is not receiving any consideratio....
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...., the principles and rationale applied in the cases cited supra can be applied to the instant case since the facts and activities are similar in nature. 5.12 The liaison work done by the Indian liaison office is nothing but the Head office/HO itself, as one cannot provide service to oneself and for supply to be established the presence of two or more parties is required. 5.13 Based on the above understanding, the applicant is on the view that the liaison office established by its Head office/HO would not fall within the scope of 'supply' as defined under Section 7 of CGST Act, 2017 and they are not required to be registered and not required to pay GST on the activities undertaken by them. PERSONAL HEARING / PROCEEDINGS HELD ON 20.02.2020 & 28.07.2020 6. Sri. Rajesh Kumar T R, Chartered Accountant & duly authorised representative of the applicant appeared for personal hearing proceedings held on 20.02.2020 & reiterated the facts narrated in their application. Further they also requested for additional hearing opportunity, vide their letter dated 25-05-2020. An additional hearing opportunity was given on 28-07-2020 and the authorised representative of the applicant appear....
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....r any other services directly/indirectly with or without consideration. vi. It will not have any signing/commitment powers, except than those which are required for normal functioning of the office, on behalf of the head office. 6.4 The levy of GST is governed by Charging Section 9 of CGST Act / SGST Act, in case of intra-state supplies and Charging Section 5 of IGST Act in case of Inter-state supplies. a. Those charging section authorizes levy of GST on: ■ Supply of goods or services; ■ On the value determined in terms of Sec. 15 of CGST Act; ■ At the rate notified; ■ To be collected in the manner prescribed; ■ Paid by the taxable person; b. 'Supply' is explained in Section 7 of CGST Act to essentially include ■ All forms of supply of goods or services made or agreed to be made; ■ For Consideration (except for certain cases set out in Sch. I); ■ By a person; ■ In the course or furtherance of business; c. Cumulatively to establish taxability the following elements should exist: ■ There should be ....
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....nt, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act." Since the LO do not have establishments more so in two states, the above provision is not applicable. 2.3. Further it would be relevant to refer to Explanation 1 and 2 to Section 8 of IGST Act, which reads as follows: Explanation 1. - For the purposes of this Act, where a person has, - (i) an establishment in India and any other establishment outside India; (ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or (iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons. Explanation 2. - A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory. 2.4. Explanation 2 specifically brining out when it will be treat....
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....s of a licensed book maker in such club; and] (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; 2.10. Mainly the sub-clause (a) covers what are the activities which constitute business. In the said clause the activities listed out are trade, commerce, manufacture, profession, vocation, adventure, wager. Other sub-clauses are either connected to sub-clause (a) or specifically covering certain new activities. 2.11. From the perspective of the applicant stand alone, it is not engaged in any of these activities listed out in sub-clause (a) or specific sub-clauses. 2.12. Further also the definition of 'Business' in general also includes these activities. Since RBI has specifically debarred the applicant as a distinct person (assuming but not admitting) to carryout business. 2.13. Based on the above points, it can be said that applicant is not engaged in any business as defined under GST law. Re: Making any forms of supply of Goods or Service 2.14. The term 'supply' per se is not defined in GST law. In common parlanc....
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.... consideration for the activities carried out by the applicant in any manner. 2.23. When it comes to whether it falls in any of the entries in Schedule I. One of the entry requires examination is entry 2 which reads as "2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business" 2.24. The distinct persons referred to in this is only as specified in Section 25 (5) which covers registrations in multiple states within India and not covers outside country and within India. Further also relevant to note that Section 25(5) is not adopted in IGST Act, instead as specific explanation is set out section 8 again giving those words. Also being a part of the same entity, it cannot be construed to be related persons. 2.25. Therefore, it cannot be falling within the ambit of schedule I when there is no actual consideration. Re: Valuation in terms of Sec. 15 of CGST Act: 2.26. When there is no consideration, the question of arriving at the value in terms of Section 15 does not arise. Re: Notified rate of tax: 2.27. A....
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.... for normal functioning of the office. Therefore, in such circumstances the law does not provide for special procedure making the foreign entity liable to pay tax through their representative office. Accordingly, even there is no procedure prescribed for payment of tax in case of liaison office. 3. Without prejudice to the foregoing merely for reference, the Applicant also understands and submits that 3.1. Sl. No. 1OF of Notification No. 9/2017-IT(R) dated 28th June 2017 as amended provides exemption for "any services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation 1 in section 8 of the Integrated Goods and Services Tax Act, 2017." The same is subject to condition that "the place of supply of the service is outside India in accordance with section 13 of Integrated Goods and Services Tax Act, 2017" 3.2. Section 13 (2) says that the place of supply would be location of the recipient if it is not covered on perusal of the activity of the applicant falls within Section 13 (2) since the activitie....
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....NADU - i. 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; ii. In view of Ruling at (1) above, the Applicant is not liable to pay CGST, SGST or IGST, as applicable; iii. In view of Ruling at (1) above, the Applicant is not required to get itself Registered under GST for the liaison activities. 5.2. Habufa Meubelen B.V. 2018 (14) GSTL 596 (A.A.R.-GST) = 2018 (7) TMI 883 - AUTHORITY FOR ADVANCE RULING - RAJASTHAN - "If the liaison office in India does not render any consultancy or other services directly/ in directly, with or without any consideration and the liaison office does not have significant commitment powers, except those which are required for normal functioning of the office, on behalf of Head Office, then the reimbursement of expenses and salary paid by M/ s. Habufa Meubelen B. V. (HO) to the Liaison Office, established in India, is not liable to GST and the applicant i.e. M/ s. Habufa Meubelen B. V. Jaipur, is not required to get itself registered under GST." Based on the above submissions i....
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.... 7.6 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 RBI, who has permitted the applicant to establish a liaison office in India, under Regulation 4 (b) also permits the applicant (LO) to carry out the following activities, specified under Schedule II. i. Representing the parent company / group companies in India. ii. Promoting export / import from / to India. iii. Promoting technical/ financial collaborations between parent/ group companies and companies in India. iv. Acting as a communication channel between the parent company and Indian companies. 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 ....
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....re, the activities performed by the liaison office to the Head office customers in India are considered to be provided by the Head office itself; that they are not related persons as there is only one legal entity and no relationship can be established. Further, they are not distinct persons under Section 25, as distinct persons should have two or more establishments. In this case, the liaison office is mere extension of the Head office and no separate identity can be established. Hence, they are neither related nor distinct persons, but are in fact working as employees of the foreign office. Accordingly, activities undertaken by the Liaison office are not covered under the definition of supply. In this regard, we refer to the concept of related persons as per the explanation to Section 15 of CGST Act, 2017. Section 15 of the CGST Act 2017, at explanation (c) stipulates that "persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, shall be deemed to be related". The applicant themselves have admitted that they are involved in promoting the business of the HO in India and they act on be....