Activities of liaison office of foreign entity don’t require GST Number as it is not supply of service
The interesting case of Karnataka AAAR: Fraunhofer-Gessellschaft Zur Forderung dated February 02, 2021
The applicant, a German company, Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung, established a liaison office in Bengaluru. It was set up as an extended arm of the Head office, and in compliance with RBI norms, it will not generate income in India and will not engage in any trade or commercial activity. It received
reimbursement of expenses from head office in order to meet the daily expenses.
The Appellate Authority set aside the advance ruling No.KAR ADRG 50/2020 dated: 08.10.2020 and answer the question raised by the Appellant in the original advance ruling application and in this appeal, as follows:
1. The activities of the liaison office do not amount to supply of services.
2. The liaison office is not required to be registered under GST as there is nno taxable supply.
3. The liaison office is not liable to pay GST
In AAR dated October 08, 2020, the AAR said that liaison activities undertaken by the applicant as specified by RBI amounts to supply under GST law. Accordingly, the liaison office will need to be registered under CGST Act and liable to pay GST of the place of supply of services in India.
Karnataka AAAR Order
The liaison office is registered with the Registrar of Companies in the same name as the parent foreign company. It does not have a separate legal existence in law. It is merely a geographical extension of the parent Company in Germany. The concept of a related person arises only when there are two ‘persons’ in existence as per law.
When the liaison office is not a person recognised as per law, the question of being a related person to the parent company does not arise. Thus the finding of the lower Authority that the parent Company in Germany and the Appellant liaison office in India are deemed to be related persons is not correct.
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 or 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.
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
As regards the requirement of registration under GST, 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. We have already held that the activities of the liaison office does 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.