TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 809
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....ce 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 facts which have a bearing on the questions raised by them in the ....
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....ness 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 submitted on or before September 30 of that year. In case the annual accounts of the Liaison Office are finalized with reference to a date other than March 31, the AAC along with the audited ....
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....uling 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 Section 7 of the CGST Act, 2017. Any transaction must be a supply made in the course or furtherance of business, for a consideration, in terms of Section 7 of the CGST Act 2017, to get covered within section 7(1)(a) under the CGST Act, 2017. 5.2 The liaiso....
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....xtended 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 consideration for this from the suppliers. Except this liaison work, this office in India would not undertake any activity of trading, commercial or industrial nature nor would they enter into any business contracts in its own name without RBIs prior permission. There is no commission/fe....
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.... 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 appeared & furnished written submissions, in support of their argument, inter alia stating as under: 6.1 The term 'liaison office' is not defined under CGST Act 2017, but defined in Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business....
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....-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 a person; ■ The person should be engaged in Business; ■ The person should make or agree to make supply of goods or services; ■ The supply should be in the course or furtherance of such Business; ■ The supply should be for a consideration except in cases covered under Sch. I; ■ The value should be arrived in terms of Sec. 15 of CGST Act; ■ There should be prescribed rate of tax for such supply; ■ Tax on such supply is to be paid by th....
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....ent 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 treated as establishment in that territory for the purpose of Explanation 1. Therefore, it would be relevant to examine whether in the explanation 2 is applicable to the present case of liaison office. 2.5. To fall within the clutches of explanation 2, the said branch/agent/representational office should be carrying out business for their HO/Principal/Primary entity since the wordings used therein is "carrying on a business through". In other words, the Branch/Agent/representational office should carryout business on behalf of the HO/principal/Primary entity. 2.6. In the present case, LO is restricted to do any business directly or indirectly and also debarred from charging any consideration for the liaison activity as per the conditions impo....
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....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 parlance it is giving of moving something from one person to another. In the something may be goods or service. Therefore, to make a supply or agree to make a supply there should be two persons. If two persons do not exist, it cannot be said there is a form of supply. 2.15. In the present context as discussed above since the applicant is an extended arm of the entity in Germany, it cannot be said that there is any form of supply leave apart whether it is goods or service. 2.16. Assuming but not admitting that the applicant is an establishment of distinct person, RBI restricts the applicant for providing any consultancy or any other services directly/indirectly with or without consideration. 2.17. Further also there cannot be any supply of services, since what is being carried out by the applicant is work as per the instructions/directions of the Primary Entity in Germany and as their ex....
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.... 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. Assuming but not admitting that there was supply and for consideration, there is no specific rates set out for the activity of liaison within the same entity. All the entries set out therein are services which has a contractual obligation for specific works, whereas in the present case there is no such specific work, they are supposed to work as per the direction of the Primary entity. Therefore, there is also no specific rate set out in the notification to tax this type of activity. Re: 'taxable person' and Registration : 2.28. The taxable person is defined in the law as "taxable person" means a person who is registered or liable to be registered under section 22 or section 24; 2.29. Therefore, it becomes relevant to understand the requirement of registration in terms of Section 22 or 24. As far as Section 22 is concerned, it mandates registration if the aggregate value of supplies exceeds 20 Lakhs. Since in the instant case there is no supply or consideration, the question of reaching aggregate value o....
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....f the activity of the applicant falls within Section 13 (2) since the activities carried out by them do not get covered under any of the sub-clauses from Section 13 (3) to 13 (13). 3.3. One of the clauses in Section 13 (8) refers to intermediary where the place of supply will be the location of the supplier. However, the definition of 'intermediary' is given in Section 2(13) as (13) "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account; 3.4. It is relevant to note that there should be three persons, one supplier another recipient and third the intermediary. The definition of 'intermediary' does not cover a situation of transaction between establishments of distinct persons. In fact the definition also requires intermediary to be broker or agent or person. The person should be separate independent person and cannot be establishment of distinct person. If the statute was so intending, then like explanation to Section 79 of CGST Ac....
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....ble Authority for Advance Ruling to give the ruling confirming our understanding as submitted above. 7. DISCUSSION & FINDINGS: 7.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the issues involved & relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant. 7.2 At the outset, we would like to state that the provisions of both the CGST Act, 2017 and the KGST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the KGST Act. 7.3 The applicant being the Liaison office, of the Head Office incorporated in Germany, opened in India under the permission of RBI & the conditions / restrictions of the activities stipulated by RBI, sought the advance ruling in respect of the questions mentioned at para 2 supra. We take up the questions for discussion, one at a time. 7.4 The core issue before us to decide is whether the activities being undertaken by the applicant (LO), in line with the conditions....
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....ed the applicant and conferred on them certain duties along with placing certain restrictions. Therefore, we observe that 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. In the instant case the applicant contends that they are not covered under Section 2(17) of the CGST Act 2017, by mainly focusing on clause (a) of the said Section. We observe that the impugned liaison activity of the applicant actually falls under clause (b) of Section 2 (17) of CGST Act, 2017 as it is ancillary to the activities mentioned in clause (a) of Section 2 (17) of CGST Act, 2017. Further, it is to be noted that the definition of business for the purpose of GST is derived from its definition in the Act and RBI's injunction on business for the applicant....
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.... office (HO) are deemed to be related persons. We therefore conclude that 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. 7.9 Now, we examine the issue of payment of GST on the activities undertaken by them. In this regard, we will first examine whether the activities are covered under zero rated supply of services. Section 2(6) of IGST Act, 2017 defines "Export of services" as the supply of any service when: 1. The supplier of service is located in India ; 2. The recipient of service is located outside India ; 3. The place of supply is outside India ; 4. The payment of such service has been received by the supplier of service in convertible foreign exchange ; 5. The supplier of service & the recipient of the service is not mere....