A liaison office set up in India for promoting the business of its head office incorporated abroad needs to be registered mandatorily under the Goods & Services Tax (GST), Karnataka’s Authority for Advanced Ruling (AAR) ruled has held.
The applicant, Bengaluru-based Liaison Office of German company Fraunhofer-Gesellschaf, moved AAR with three specific queries – whether the activities of a liaison office amount to supply of services, whether it is required to be registered under CGST (Central Goods & Services) Act, 2017, and whether it is liable to pay GST.
The German company had established a liaison office here under the permission of the Reserve Bank of India (RBI) to act as an extended arm of the head office and to carry out the activities permitted here. According to the applicant, one of the conditions stipulated by RBI says the liaison office will not generate income in India and will not engage in any trade/commercial activity. The said office will work only for liaison activities and not for any indirect entry into services.
No income generated
Other conditions, as submitted by the applicant, mentioned that no commission will be charged or any other remuneration received/income earned by the office in India for the liaison activities/services rendered by it. The entire expenses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels.
After going through all the facts and hearings, AAR referred to the concept of related persons as provided in Section 15 of the CGST Act and concluded that the ‘applicant and their Head Office are deemed to be related persons’. Therefore, activities performed by the applicant falls under the scope of supply under Section 7 of the CGST Act, even in the absence of consideration, as it is in relation to the furtherance of business, it said.
It held that the liaison office and head office shall be treated as establishments of distinct persons as per Section 8 and the activities performed by them cannot be called export of services. It found that “they are distinct legal entities” covered by Section 2 (13) of the IGST (Integrated Goods & Services Tax) Act under the definition of intermediary.
AAR refrained from commenting on the claim of exemption where the place of supply of service is outside India by virtue of the notification issued in 2018. However, it made it clear that valuation norms under the rules need to be resorted for determining tax liability and “assessee is required to be registered compulsorily as per Section 24 of the CGST Act as they are engaged in inter-state taxable supply in terms of Section 7 (5) of the IGST Act,” it said.