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TMI Blog2021 (8) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities other than of liaising (i.e. acting as a communication channel between its head office and parties in India), the applicant is also not allowed to undertake any business or commercial activities, without the permission of the RBI. Further, the services received by the applicant from its Head Office is import of service since the Head Office is located abroad - There is no doubt that both, the Head Office and the Liasion Office are related persons and the provision of Schedule I mentioned above should be applicable in the present case because the supply received by the applicant from the Head Office is a supply of services. However it is seen that the said provision will be applicable only when the said services are imported in the course or furtherance of business. The applicant can only perform the activities mentioned at (i) to (iv) above. No other activities of any kind can be performed without the express permission and approval of the RBI - the applicant is not undertaking any 'business' as defined under Section 2(17) of the CGST Act and therefore the activities/services received by the applicant from its HO cannot be said to be in the course or furtheranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the activities carried by the Applicants Head office located outside India and rendered to the Applicant would be liable to GST in the hands of the Applicant considering that the Applicant is not engaged in any business? (iii) Whether Applicant would be required to obtain registration in India under Section 24 of the Central Goods and Service Tax Act, 2017 with respect to activities carried out by the Applicant's Head office located outside India and rendered to the Applicant considering that the Applicant is not engaged in any business? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions made by the applicant is as under:- 1. The World Economic Forum (WEF) is a public interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new area for global cooperation and is an integral part of the its strategy which will support its ongoing initiatives. The WEF is working to speed up the benefits of science and technology for society and has created a global hub of expertise, knowledge-sharing and collaboration in San Francisco to achieve this objective. The Fourth Industrial Revolution is transforming entire systems of production, distribution and consumption, providing opportunities for new value creation through game-changing technologies. In the Centre for the Fourth Industrial Revolution Network, various projects cover the following areas of technological innovation: - Artificial Intelligence and Machine Learning; - Internet of Things and Connected Devices; - Blockchain and Distributed Ledger Technology; - Autonomous and Urban Mobility; - Drones and Tomorrow's Airspace; - Precision Medicine - Fourth IR for the Earth - Data Policy - Digital Trade 5. Applicant is the Indian office of The WEF, established as Liaison Office ('LO) to assist the WEF to undertake the Fourth Industrial Revolution activities in India to encourage, develop and facilitate coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 7/2015-16 dated 01 July 2015 (Master Circular No. 7/2015-16 dated 01 July 2015). The said Circular refers to Notification No. FEMA 22/2000-RB dated 3 May 2000 ('Notification No.22') notifying the FEMA regulations for establishment of a LO in India under the powers Conferred by Section 6(6) of the Foreign Exchange Management Act, 1999. 9. Further, as prescribed by the Master Circular No. 7/2015-16 dated 01 July 2015 and Notification No 22, entire expenses of the Applicant in India will be met entirely through Inward remittances of foreign exchange received from The WEF located outside India. 10. In relation to the remittance received by the Applicant from the WEF located abroad, there is no supply since it is neither engaged in any business activity nor is it permitted to execute any business contracts in its own name without RBI's prior permission. There is no consideration/fees charged or any other remuneration received/earned by the Applicant and the remittance received from the LIO is only for meeting expenses of the Applicant as per master circular no. 7/2015-16 dated 01 July 2015. 11. Further, the Applicant submits that for the purpose of operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Tax Act. 2017 ('CGST Act') and thus be liable to lax? POSITION IN LAW AND APPLICANT'S UNDERSTANDING OF THE SAME 1. The applicable statutory provisions are outlined herein below for ease of reference : - a. Section 7 of the CGST Act (amended) defines the supply as follows: (1) For the purposes of this Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business, and (c) the activities specified in Schedule I, made or agreed to be made without a consideration;' b. Schedule of the CGST Act provides list of activities which are to be treated as supply even if the same is made without any consideration: 'Activities to be treated as supply even if made without any consideration: 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny local authority in which they are engaged as public authorities, 2. Section 7 of the CGST Act inter alia provides that the expression 'supply' includes the supplies specified under Schedule 1 of the CGST Act made without consideration. Entry 4 of Schedule of the CGST Act includes import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business. Thus, in view of the facts of the present case, in order to specifically qualify an activity as 'supply' under Entry No. 4 of Schedule 1, the following key conditions are required to be fulfilled: (i) There should be a service imported into India; (ii) The services should be received from a related person' outside India; (iii) The service is provided without consideration, and (iv) The said import of service must be in the course or furtherance of business 3. In applicant's view, the fourth condition as stated above is not being satisfied in the present case because the Applicant does not carry out any business activity in India. 4. Applicant established in India does not conduct 'busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Manufacture : Section 2(72) of the CGST Act defines manufacture as processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use. 4.4 In order to draw a line of difference between the nature of activities construed as 'business' under the GST legislation and the applicant's activities, the activities proposed to be carried by the Applicant are provided below in brief: a. Representing and acting as communication link between the HO and the Indian entities to identify and source potential members; b. To assist the HO in participating in social projects, promote its collaborations with entities in India and globally, and increasing awareness in India about its programs and agendas; c. To carry out activities in connection to the CHIR, such as research, developing and deploying policies and regulatory framework. 4.5 It is clear that the proposed activities of the Applicant do not fall under any of the clauses under the definition of 'business' as explained below: Extract of the definition of business' Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as clauses (b) and (c) include activities that are ancillary or in connection to activities in clause (a) Applicability of clauses (b) and (c) pre supposes the existence of a trade or commerce etc. which is absent in the case of the Applicant. If the main activity is not business, then any incidental or ancillary activity would not amount to business. (d) supply or acquisition of goods including capital goods and services in connection with commencement or not closure of business. Clause (d) of the definition of business does not cover the activities of the Applicant since the Applicant is engaged in the commencement or closure of business. The Applicant is not conducting any business in India as submitted above and hence would not be covered under the said clause. (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; Clause (e) of the definition of business does not cover the activities of the Applicant since the Applicant is not a club or an association or a society of members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al/manufacturing activities which form the definition of 'business' under the CGST Act are expressly denied for a LO as per RBI Master Circular No. 7 dated 01 July 2015. 5.3. Further, the said Master Circular No. 7 dated 01 July 2015 makes it clear that the LO is not permitted to undertake any business in India and earn any income. Further, the same is further evident from the fact that the said Circular also makes it clear that the expenses of the LO are to be met entirely through inward remittances received from the HO. relevant extract of the RBI Master Circular no. 7 dated 01 July 2015 below for ease of reference. A Liaison Office (also known as Representative Office) can undertake only liaison activities. i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is. therefore, limited to collecting information about market opportunities and providing information about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services provided by the LO set up in India and consequently the need to register the LO under GST. 6.2. In the case of M/s Takko Holding , similar to the present case, the LO of Takko Holding in India was carrying out liaising activities with the prior permission of the RBI and acting as a communication channel between parent company and Indian company. The following were the activities being carried out by the LO in India: a. Order enquiries are received from German office and sent to the supplier in India for their price quote; b. Prices are collected from various suppliers, and informed to German office; c. German office confirms the order for the supplier with lowest price quote deliver terms; d. The order production process is followed by Merchandising Department (collecting data for each stage of the progress till the execution of order) and communicated to German office; e. The Quality Department audits / monitors the quality parameters of the merchandise on continuous basis until the final inspection of the merchandise shipment and communicates with the Supplier and the German office f. The Shipping Department coordinates with German ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice . Accordingly, none of the liaison activities of Takko is covered under the definition of supply. Hence, Takko would not be a supplier under CGST/SGST Act and hence is not required to obtain registration under Section 22 of CGST/SGST Act or pay CGST, SGST or IGST as applicable. 6.6. Based on the above, it is clear that as far as the LO performs activities within what has been permitted by the RBI guidelines, the same would not be considered as a business. In this relation, the Applicant submits that it does not perform or conducts any activities apart from what has been permitted by the RBI and hence the same should not be considered as a business. 6.7. Similarly, the Rajasthan Authority of Advance Ruling in the case of M/s Habufa Maubelen has also ruled that since the liaison office is strictly prohibited to undertake y activity of trading, commerce or industrial nature, the liaison cannot be said to be providing any taxable supplies and hence are not required to get registered under CGST Act. 6.8. Given the above, the Applicant wishes to place reliance on the aforementioned rulings in submitting that the Applicant in the present case cannot be said to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of business, 7.2. Given the above, it can be seen the definition of business under the sales tax laws with that under the GST legislation are similar. In this relation, the Applicant wishes to draw attention to judicial decisions passed under the erstwhile VAT laws wherein the ambit of business has been analyzed. 7.3. In this relation, the Applicant refers to the ruling of the Bombay High Court in State of Bombay Vs. Ahmedabad Education Society where an education society was entrusted with the task of founding a college and for that purpose it was to construct buildings. The ruling held that, having regard to main activities and its objects, it was held that the educational society was not established to carry on business and the sale of bricks was held not excisable to sales tax. The Hon'ble Judge pointed out that it was not merely the act of selling or buying etc. that constituted a person a dealer but the object of the person who carried on the activities was important. It was further stated that it was not every activity or any repeated activity resulting in sale or supply of goods that would attract sales tax. If legislature intended to tax every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity being in the course of business or furtherance of business, the activity cannot be said to be a supply taxable under Schedule I. 8.2. Thus, in the facts of the present case, the Applicant submits that since it does not carry out any business in India, in case where support services are identified to be extended by the HO outside India to the Applicant in India without any consideration, the service should not be made liable to tax as a taxable supply under Entry 4 of Schedule 1 of the CGST Act. 8.3. Notwithstanding the above, the Applicant submits that in absence of consideration the services imported by the Applicant from the HO cannot even be levied to tax under Section 7 of the CGST Act since 'consideration' is an essential element for qualifying an activity as 'supply' under Section 7 of the CGST Act. Q2. Whether Applicant be required to obtain registration under Section 24 of the CGST Act? POSITION IN LAW AND APPLICANT'S UNDERSTANDING OF THE SAME 9. The applicable statutory provisions have been outlined herein below for reference: - Relevant extract of Section 24 of the CGST Act 24. Notwithstanding anything cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership Responding to world's epidemic risk Action on climate change Helping governments to adopt artificial intelligence Help heavy industries to achieve net-zero carbon emission by 2050 Companies to run on 100% renewable power by 2050 Vaccine alliance Working to make clean air a reality Revamp drone regulations to promote innovation and safety Closing gap between global water supply and demand Efficient and secure cash-based humanitarian assistance Disability inclusion programme LGBT1 equality at workplace Making world's electric ecosystem more cyber resilient Global framework for smart city governance Redesigning Trust with block chain in the supply chain 2. Sample India specific projects undertaken by the Forum Programme for delivery of blood and vital medical supplies via drones. Agriculture efficiency via IOT and drones Policy for block chain smart contracts Principles and guidelines for Artificial Intelligence 3. Role of India Liaison office (the Applicant') Liaise with the Indian members, partners, government officials, corporate leaders, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be in relation to business. 4. Applicant operates it's LO in India under the approval granted by the Reserve Bank of India vide its Approval dated 16.01.2019. It is evident from the said Approval, specifically Serial Nos. 5, 6, 10 and 11 of Annexure 1 that, the Applicant is prohibited from carrying out any business activities or generate any income or remuneration in India. 5. Further, the fact that the Applicant is not generating any income in India is evident from the Financial Statements for the period ending 31.03.2019, placed before this Ld. Advance Ruling Authority in the previous hearing. Further, the Income Tax Return, for the Assessment Year 2019-20, also reveals that the Applicant has disclosed Nil gross total income in the said Income Tax Return. Revenue accepts Applicant's position Applicant relies on the letter dated 26.07.2019, specifically para 6 'thereof, issued by the Assistant Commissioner, CGST CX, Belapur, IV Division wherein it is clearly stated that, the activity undertaken by the LO of the Applicant is without consideration and is not in the nature of business and therefore no registration under Section 24 of the CGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has accepted the Applicant's submissions it is prayed that the ruling be giving adopting the same view. HO - LO belong to same juristic person 13. Since the HO and LO are one and the same juristic person, it cannot be said that for the transactions inter se Head Office and LO would quality as between distinct persons to bring them under the GST liability. Dubai Chamber Ruling not applicable 14. Applicant deems it appropriate to refer to the ruling given by this. Ld. Authority in the case of Dubai Chamber of Commerce and Industry ( DCCI ), where in the peculiar facts of the said case the Id. Authority came to the conclusion that the said LO in the case of DCCI will be liable to GST. However, there are number of differentiating facts in the case of DCCI and that of the Applicant. Some of them are - a) DCCI had sought ruling of services being provided by them (forward charge), whereas Applicant is seeking the ruling of activities of HO being carried out in support of LO activities. When Applicant's HO itself is not engaged in the business activities it cannot be said that the LO is engaged in the business activities; b) there was a categorical finding in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest, not for profit organization. Their LO in India has been permitted by RBI to perform the following activities: i. To represent The World Economic Forum/its group companies in India ii. To act as a communication channel between The WEF/its group companies and Indian Entities, to identify potential members in India for WEF's programme and to facilitate meetings with such potential members/applicants in India. iii. To assist the WEF's participation in undertaking socially useful projects iv. To promote collaborations between The WEF and entities in India and globally. v. To assist the World Economic Forum in making efforts to increase awareness in India about its Col programs and global agencies. vi. To carry out activities that may be connected to and/or incidental to the Centre for the Fourth Industrial Revolution (C4IR) by co-designing and implementation of policy and governance Jos pilots aligned with the CHIR, including pursing research, developing and deploying policy principles and regulatory framework for such C4IR activities The LO is the same legal entity as The WEF, Switzerland. The LO has been permitted to undertake solely li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ii) All expenses of the office are to be met only out of funds received from abroad. Funds of expenses will be received from the HO (as per RBI regulations) for undertaking the liasoning activities and no other income will be received or paid by the LO to the HO. Here policy recommendations are made. 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. No considerations are received. Besides, M/s. The World Economic Forum is a public interest, not for profit organization. (iii) The definition of L.O as per FEMA regulation is as under: Liaison Office' means a place of business to act as a channel of communication between the principal place of business or Head Office or 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 Therefore the definition itself restricts the LO from doing business and thus the activity cannot be considered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions. The applicant requested for adjournment to rephrase their questions. Jurisdictional Officer Ms. Reena George Supdt. also appeared. 4.2 Final hearings scheduled to be held on 25.02.2020, 03.03.2020 and 04.02.2021 were adjourned on request made by the applicant. 4.3 Further final hearing was held online on 29.06.2021. Shri Prasad Paranjape, Advocate along with Shri Arun Jain, Advocate and Ms. Aditi Namdeo, Head of Operations and Shri Nishad Goudi, C.A. appeared made oral and written submissions. Jurisdictional Officer Ms. Reena George Supdt. also appeared. 4.4 We heard both the sides. 05. DISCUSSIONS AND FINDINGS: 5.1 We have perused the documents on record and submissions made by both, the applicant as well as the jurisdictional officer. 5.2 The applicant has submitted that : it is a Liaison Office (LO) of the World Economic Forum (WEF) which is a public interest, not-for-profit organization based in Switzerland; it has been established to assist the WEF undertake the Fourth Industrial Revolution activities in India ; the applicant LO has been set up by the WEF as permitted by the Reserve Bank of India ('RBI') as per the Foreign Exchange Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; b. Activities to be treated as supply even if made without any consideration as per Schedule I mentioned above, is as under:- 1. Permanent transfer or disposal of business assets................ 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: Provided that gifts................. 3. Supply of goods ................. 4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business. c. As per Section 2(102) of the CGST Act 'services' means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged d. The term 'business' is defined under Section 2(17) of the CGST Act as under business includes - (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Liasion Office are related persons and the provision of Schedule I mentioned above should be applicable in the present case because the supply received by the applicant from the Head Office is a supply of services. However it is seen that the said provision will be applicable only when the said services are imported in the course or furtherance of business. 5.5.7 We find that the applicant, as per their submissions are undertaking only liaising activities and act as a communication link between the HO and the companies in India. They have submitted that no business/commercial activities are undertaken by them. They have further submitted that their activities of liaising and acting as a communication link for their Head Office does not fall under the definition of the term 'business as prescribed under the CGST Act, 2017. We agree with the submissions made by the applicant in this regard. 5.5.8 As per Schedule II of Notification No. 22/2000-RB dated 03.05.2000, the Permitted activities for a Liaison office in India of a person resident outside India are as under:- (i) Representing in India the parent company/group companies. (ii) Promoting export import f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore so long as the services imported by the applicant from its HO are not such transaction. However, if the applicant undertakes any further supply which is liable to GST then, in such a case the import of services from its Head Office will be liable to GST at the hands of the applicant. 5.7 As a corollary to the import of service in this case, not being considered as a supply liable to GST, the applicant would not be required to obtain registration in India under Section 24 of the Central Goods and Service Tax Act, 2017 with respect to activities carried out by the Applicant's Head office located outside India and rendered to the Applicant. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows: ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA- 11/2019-20/B-50 Mumbai, dt. 20-08-2021 For reasons as discussed in the body of the order, the questions are answered thus - Question 1. Whether the activities carried by the Applicant's Head office located outside India and rendered to the Applicant will amount to supply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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