GST not payable by Liaison Offices working with RBI Permission: AAR [Read Order]

Liaison Offices - GST - Taxscan

The Authority for Advance Ruling (AAR), Tamil Nadu has held that the liaison offices established with the prior permission of the Reserve Bank of India (RBI) and the activities of the same are strictly in line with condition specified by RBI permission letter do not amount to supply under CGST und SGST Act.

In the instant case, Takko are working as the liaison Office of M/s. Takko Holding GmbH, Germany with the prior permission of RBI. Liaison Activities include acting as communication channel between the parent company and Indian supplier of goods to parent company at Germany in terms of the procurement, order placement, quality checks, and technical support shipping of the Readymade garments. Takko is not receiving any consideration for this from the suppliers. Except this liaison work, this office in India would not undertake any activity of trading, commercial or industrial nature nor would they enter into any business contracts in its own name without RBIs prior permission. There is no commission/ fees being charged or any other remuneration being received/ income being earned by the office in India for the liaison activities/ services rendered by it. The HO, reimburses the expenses incurred by Takko for their operations in India which are in the nature of salary, rent, security, electricity, travelling etc. They do not have any other source of income. Further the liaison office is strictly prohibited to undertake any activity of trading, commercial or industrial nature or entering into any business contracts in its own name.

The authority noted that the applicant/liaison office is working as per the terms and conditions stipulated by RBI and the reimbursement of expenses & salary of employees is paid by Mls Takko Holding GmbH to the liaison office. “No consideration for any activity is being charged by the liaison office and the liaison office does not have any business activities of its own as specified by RBI conditions,” the authority said.

“Further, Schedule I of CGST Act specifies that supply of services between related parties or distinct persons as per Section 25, even without consideration, constitute a supply. Takko is acting as an extension of the German Office in its procurement activities from suppliers in India as has been spelt out in the RBI permission letter. Hence, they are neither related nor distinct persons, but are in fact working as employees of the foreign office. 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,” it said.

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