2018 (7) TMI 883 - AAR - GST

Levy of GST - Liason office established in India - no consideration for services charged - supply of services - place of supply - Whether the reimbursement of expenses and salary paid by M/s Habufa Meubelen B.V.(HO) to the liaison office established in India is liable to GST as supply of services, especially when no consideration for any services is charged/ paid? - Held that - Except proposed 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/ fees being charged or any other remuneration being received/ income being earned by the office in India for the liaison activities/ services rendered by it - The HO, Netherlands reimburses the expenses incurred by the applicant for their operations in India which are in the nature of salary, rent, security, electricity, travelling etc. The applicant does not have any other source of income and it is solely dependent on the HO for all the expenses incurred by the applicant, which are subsequently reimbursed by the HO. Therefore the HO and Liaison Office cannot be treated as separate persons. When the applicant/liaison office is working as per the terms and conditions as mentioned, the reimbursement of expenses and salary paid by M/s Habufa Meubelen B.V to the liaison office, is not liable to GST, as no consideration for any services is being charged by the liaison office. Whether the applicant i.e. the Liaison Office is required to get registered under GST? - If it is assumed that the reimbursement of expenses and salary claimed by liaison office is a consideration towards a service, then what will be the place of supply of such service? - Held that - The liaison office is strictly prohibited to undertake any activity of trading, commercial or industrial nature or entering into any business contracts in its own name. Also the reimbursement claimed by them from their HO is also falling out of the purview of supply of service - As there are no taxable supplies made by the Liaison office, they are not required to get registered. Ruling - If the liaison office in India does not render any consultancy or other services directly/indirectly, 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.

Summary

Issues Involved:
1. Whether the reimbursement of expenses and salary paid by M/s Habufa Meubelen B.V. (HO) to the liaison office established in India is liable to GST as a supply of service when no consideration for any services is charged/paid.
2. Whether the applicant, i.e., the Liaison Office, is required to get registered under GST.
3. If the reimbursement of expenses and salary claimed by the liaison office is considered a consideration towards a service, then what will be the place of supply of such service?

Analysis:

(A) Submission of Applicant:
The applicant, M/s. Habufa Meubelen B.V. (HO), operates as a Liaison Office in India with specific conditions set by the RBI. The liaison office does not engage in trading, commercial, or industrial activities independently and is solely dependent on HO for funds. The expenses incurred by the liaison office are reimbursed by HO, and no separate consideration is charged for any services.

(B) Issue for Determination:
The questions before the Authority for Advance Ruling (AAR) include the liability of GST on reimbursement without consideration, the necessity of GST registration for the Liaison Office, and the place of supply for such services if considered.

(C) Submission by the Applicant:
The applicant argues that as per the CGST Act, for a transaction to be considered a supply liable to GST, there must be a flow of services with consideration. Since no separate consideration is charged, the reimbursement of expenses does not qualify as a supply of service. The liaison office is an extension of the HO and does not have independent existence or revenue.

(D) Issues to be Decided:
The key issues to be decided include the GST liability on reimbursement, the requirement of GST registration for the Liaison Office, and the place of supply if reimbursement is deemed a consideration for services.

(E) Personal Hearing:
A personal hearing was conducted where the applicant reiterated their submissions, emphasizing the absence of consideration for services rendered by the liaison office.

(F) Findings:
The AAR concludes that since the liaison office does not provide services independently, operates under strict RBI guidelines, and is entirely funded by HO without charging any separate consideration, the reimbursement of expenses and salary is not liable to GST. The liaison office is not required to register under GST as it does not engage in taxable supplies.

In summary, the AAR ruled that if the liaison office in India does not provide services directly or indirectly with consideration and does not have significant commitment powers, then the reimbursement of expenses and salary by HO to the Liaison Office is not subject to GST, and the applicant is not required to register under GST.