The Authority for Advance Ruling ( AAR ), Rajasthan has ruled that the payments made by the foreign companies towards expenses for the liaison offices in India are not subject to Goods and Services Tax (GST).
The authority, while considering an application for advance ruling by M/s Habufa Meubelen B V (Indian Liaison Office) held that payment of salaries of employees and other working expenses are not services and not liable to tax. The authority held that it is a mere liaison office that does not have any other source of income and is solely dependent on head office for expenses.
Before the authority, the applicant said that there is no consideration for any service, being charged by the liaison office. This being so, the Company wanted to know whether GST applicable on reimbursements of salaries, rent, security, electricity by the parent company.
According to the authority, the head office and liaison office cannot be considered as different entities and accordingly, there cannot be any flow of services between them as one cannot provide service to self.
It was further clarified that “If the liaison Office in India does not render any consultancy or other services directly/ indirectly with or without any consideration and the liaison office does not have a significant commitment powers, except those which are required for normal functioning of the office, on behalf of head office, then the reimbursement of expense and salary paid by M/s Habufa Meubelen B V to the liaison office established in India is not subject to GST.”
Contrary to the previous service tax regime, definition of ‘supply’ under GST law is very wide and does not restrict the taxability to the transactions made by one person to another.
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