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TMI Blog2020 (10) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... ing channels and it will not have any signing / commitment powers, except than those which are required for normal functioning of the office, on behalf of the HO/ Parent Company - 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 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 recognized by law with duties and rights - 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is India. - KAR ADRG 50/2020 - - - Dated:- 8-10-2020 - DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER (CENTRAL TAX) Represented by: Sri. Rajesh Kumar C A, Authorised Representative ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 UNDER 98(4) OF THE KGST ACT, 2017 1. Fraunhofer-Gessellschaft Zur Forderung der angewwandten Forschung e.V, Germany -Liasion Office, (called as the Applicant hereinafter), # 405 406, Prestige Meridian Towers-II, 30, M G Road, Bengaluru-560 001, having User ID 291900000250ARV, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 8v KGST Act, 2017 read with Rule 104 of CGST Rules 2017 KGST Rules 2017, in form GST ARA-01, discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act. 2. The applicant, incorporated in Germany, undertakes the business of promoting applied research and 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and approach RBI for prior approval if it wants to represent any group company. 4.3 Further Annexure-I of the RBI permission letter provides the terms and conditions according to which the liaison office in India will perform the following functions. a. Representing in India the parent company. b. Promoting export/import from/to India. c. Promoting technical/Financial collaborations between parent/group companies and companies in India. d. Acting as a communication channel between the parent Company and Indian Companies. 4.4 In addition, certain other conditions were also stipulated such as: (i) It shall work only for liaison activities and not for anu indirect entry into service. (ii) Shifting the liaison office to any other city shall be made only with the prior approval from RBI. (iii) Except 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 acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstands that the activity of the liaison office is merely an extended arm of the Head office as the liaison office is not engaged in any business activity on its own, not charging or collecting any fee or consideration and had adhered to the conditions stipulated in the RBI approval letter. Moreover, Liaison is neither related nor distinct persons, but are in fact working as employees of the Head Office. Therefore, the activities performed by the liaison office to the Head office customers in India are considered to be provided by the Head office itself. 4.8 In addition, the liaison office do not account any form of income as forthcoming in the Financials of the liaison office and the only income being the remittance from the Head office which is purely to meet the working of the liaison office. 4.9 In order 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II of the CGST Act, 2017 provides that certain transaction even if made without consideration to be treated as supply. Sl.No.2 of the Schedule is as follows 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 5.6 The Head office and the liaison office, in this case, are one and the same and they are not distinct persons. 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. 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 specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein it was ruled as under; In view of the submissions made by the applicant and as discussed in above paras, when the applicant/liaison office is working as per the terms and conditions as mentioned under para 1.1 to 1.5 above, 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. Further, the kind of reimbursement claimed by them from their HO is also falling out of the purview of supply of service and as there are no such taxable supplies made by the Liaison office, they are not required to get themselves registered under GST. 5.11 In terms of section 103 of the CGST Act, 2017, even though Advance rulings are applicable only to the respective applicants, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para E in brief facts above . Among them some of the relevant conditions are as follows: i. It shall work only for liaison activities and not for any indirect entry into service. ii. Except 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. iii. 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. iv. The entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels. v. It will not render any consultancy or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Societies Registration Act, 1860 (21 of 1860); trust; and every artificial juridical person, not falling within any of the above; 2.1. By virtue of sub-clause (h) the Foreign Entity is falling within the definition of person. The LO not being a separate entity than Foreign Entity, it does not fall on its own into the definition of any of the sub-clauses given in Section 2(84) of CGST Act. 2.2. It would be relevant to refer to Section 25(5) of CGST Act. It reads as follows: (5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) activities of a race club including by way of totalisator or a license to book maker or activities 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 activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to charge commission/fees or earn any other remuneration received/income for the liaison activities/services rendered by it. Further the entire expenses (like Salary, Rent, staff welfare, Travelling Costs etc.,) of the office the applicant in India will be met exclusively out of the funds received from abroad through normal banking channels. The same are not construed as income of the entity in India as well under the Income Tax Act. 1961. 2.22. Thereby it can be said that there is no 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, on this ground also there is no requirement of registration in the absence of specific requirement. Re: Prescribed manner of payment of tax; 2.33. The manner of payment of tax has to be specifically set out in the Rules. Again, this is a special type of arrangement wherein it is not having any independent rights. Even RBI says that the Applicant will not have any signing/commitment powers, except than those which are required 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Applicant is not liable to pay any tax; 5. The Applicant also understands that same issues are already examined by other Advance Ruling Authorities and have giving the rulings similar to our understanding. The reference of the Rulings are as follows: 5.1. Takko Holding GmbH 2018 (19) GSTL 692 (A.A.R.-GST) = 2018 (10) TMI 1315 - AUTHORITY FOR ADVANCE RULINGS, TAMIL 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation channel between the Parent Company and the Indian Company, the entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels and it will not have any signing / commitment powers, except than those which are required for normal functioning of the office, on behalf of the HO/ Parent Company. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of the Head office (HO) and the liaison office performs no separate functions other than those specified and approved by the RBI; that the liaison office acts on behalf of the Head office/HO for its customers in India; that the Liaison office is neither related nor distinct persons, but are in fact working as employees of the Head Office and therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has an establishment outside India. Thus the applicant (LO) and their head office (HO) shall be treated as establishments of distinct persons, in terms of Section 8 supra. Therefore the applicant (LO) and their head office (HO) are distinct persons and the activities performed by them can t be called export of services. The applicant has claimed exemption by virtue of Sl. No. 10F of notification No. 09/2017-Integrated Tax(Rate) dated 28.06.2017 as amended by Notification No. 15/2018-IT (R) dated 26.07.2018. The condition mentioned in the Notification for claiming exemption is that the place of supply of service is outside India in accordance with Section 13 of IGST Act, 2017. Since this Authority is not eligible to decide the matter of place of supply as per Section 97 (2) of CGST Act, 2017, we will not be able to comment on the claim of exemption, claimed by the applicant. However, we proceed to comment on the submission made by the applicant that they are not an intermediary as per Section 2 (13) of IGST Act, 2017. There is no doubt that the applicant is facilitating supply between the HO and Indian customers. They have a mandate from RBI for this purpose. Further, they are no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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