2021 (2) TMI 1164 - AAAR - GST

Supply of services or not - activities of a liaison office - requirement of registration of liaison office - liability of liaison office to pay GST - HELD THAT - Establishment of a liaison office in India by foreign entities is regulated in terms of Section 6(6) of the Foreign Exchange Management Act (FEMA), 1999. The FEMA defines Liaison Office as a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial / trading / industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel . A body corporate incorporated outside India (including a firm or other association of individuals) desirous of opening a liaison office in India has to obtain permission from the Reserve Bank of India under the provisions of FEMA, 1999. In this case, the Appellant has been granted permission by RBI vide letter dated 11-06-2014 to act as a liaison office for its Head office in Germany. We find from the records that the parent company in Germany is engaged in promoting applied research and development for the benefit of industry and society. The RBI permission has been obtained to set up a liaison office in Bangalore. As per the RBI permission, the liaison office shall undertake only permissible activities as mentioned in Schedule II of FEMA Notification No 22/2000 RB dated 3rd May 2000 as amended - The RBI permission is subject to the condition that the liaison office will not generate income in India and will not engage in any trade/commercial activity. Annexure I to the RBI permission dated 11-06-2014 lists out the terms and conditions for approval of establishing the liaison office in India. Since the parent company in Germany and the Appellant in India cannot be treated as separate persons but as one legal entity, the liaison activity performed by the Appellant for the parent company is in the nature of a service rendered to self A service rendered to oneself does not come within the purview of 'supply' under GST. Therefore, the activities of the Appellant as a liaison office does not amount to a supply of service. The activities of the liaison office are not a 'supply' under Section 7(1)(a) of the CGST Act and will also not be covered under the ambit of clause 2 of Schedule I of the said Act. Requirement of registration under GST - HELD THAT - Section 22 of the CGST Act mandates that every supplier who makes a taxable supply of goods or services or both, whose aggregate turnover in a financial year exceeds ₹ 20 lakhs is required to be registered in the State from where he makes the taxable supply. The term 'taxable supply' is defined in Section 2(108) of the CGST Act to mean a supply of goods or services or both which is leviable to tax under this Act - the activities of the liaison office do not amount to a 'supply' under GST. Hence, there is no taxable supply and there is no requirement for obtaining a GST registration or payment of GST. When the liaison office is not required to be registered under GST, the question of whether they are a distinct person or establishment of distinct person is irrelevant.

Summary

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.