TMI Blog2021 (2) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant has been granted permission by RBI vide letter dated 11-06-2014 to act as a liaison office for its Head office in Germany. We find from the records that the parent company in Germany is engaged in promoting applied research and development for the benefit of industry and society. The RBI permission has been obtained to set up a liaison office in Bangalore. As per the RBI permission, the liaison office shall undertake only permissible activities as mentioned in Schedule II of FEMA Notification No 22/2000 RB dated 3rd May 2000 as amended - The RBI permission is subject to the condition that the liaison office will not generate income in India and will not engage in any trade/commercial activity. Annexure I to the RBI permission dated 11-06-2014 lists out the terms and conditions for approval of establishing the liaison office in India. 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 for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AUTHORITY FOR ADVANCE RULING, KARNATAKA . Brief Facts of the case: 3. The Appellant is an organisation incorporated in Germany and is engaged in promoting applied research and development for the benefit of industry and society. The Appellant had established a Liasion Office in Bengaluru (also referred to as LO or Head Office or HO) which is an extended arm of the Head Office to carry out activities as permitted by the Reserve Bank of India. The Annexure to the RBI permission letter stipulates a number of conditions for establishment of liaison office in India and one such condition is that the liaison office will not generate income in India and will not engage in any trade/commercial activity. The Appellant has also obtained a Chartered Accountant's certificate dated 26-06-2020 affirming that the Appellant had undertaken only those activities that have been specifically permitted by the RBI and had complied with the terms and conditions specified therein. The LO only receives reimbursement of expenses from head office in order to meet its daily expenses in running the LO. 4. In this regard, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of the office in India will be met exclusively out of the funds received from abroad through normal banking channels; that the LO will not render any consultancy or any other services directly/indirectly with or without consideration; that it will not have any signing/commitment powers, except than those which are required for normal functioning of the office, on behalf of the head office. 6.3. They submitted that the lower authority has completely ignored the fact that the LO of the Company set up in Bengaluru under the permission of the RBI is not a separate or independent entity; that the LO is a geographical extension of the Company with the same legal identity of the Company; that the lower authority has ignored the settled principle that one cannot provide service to self; that this principle was reiterated by the Supreme Court in the case of State of West Bengal vs Calcutta Club Ltd - 2019-TIOL-449-SC-ST LB = 2019 (10) TMI 160 - SUPREME COURT and it upheld the principle of mutuality for a member's club and this applies to GST law as well. 6.4. They submitted that the LO is established only for establishing a communication channel and does not undertake an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in no other State or UT. They further submitted that the amount received by the LO from its HO is towards salary rent, security, electricity, travelling, etc as the LO does not have sny other source of income. Mere reimbursement of expenses cannot be termed as consideration; that mere reimbursement of expenses by the Company to the LO cannot be stretched to be covered under Schedule I and treat the same as coming within the meaning of supply; that the presence of two distinct persons is an essential element of 'supply' as defined in Section 7 of the CGST Act; that in the absence of existence of two persons, levy under GST fails. 6.7. The Appellant submitted that when the GST law does not recognise LO as a person, reference has to be made to the Companies Act, 2013 or FEMA regulations to arrive at a conclusion; that when the Companies Act, 2013 registers the LO as part of foreign company and there exists employer and employee relationship between the LO and its employees at LO, the LO cannot be treated as an independent artificial person. They submitted that when the impugned order has acknowledged that the activity of the LO is not covered under clause (a) of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to discard evidence, the Revenue should establish that the evidences are not appropriate or incorrect or false or the counter evidence to discard the Appellant's evidence should have been produced. 6.10. They also placed reliance on decisions of the AAR of other States given in the case of Takko Holding GmbH = 2018 (10) TMI 1315 - AUTHORITY FOR ADVANCE RULINGS, TAMIL NADU and HabufaMeubelen B.V. = 2018 (7) TMI 883 - AUTHORITY FOR ADVANCE RULING - RAJASTHAN which were rendered on identical set of facts; that in the above rulings, the Authorities held that the liaison activities being undertaken by the applicant being strictly in line with the conditions specified by the RBI permission does not amount to supply under GST; that the reimbursement of expenses and salary paid by the Head Office to the liaison office is not liable to GST as no consideration for any services is being charged by the liaison office. In view of the above, the Appellant submitted that the impugned order in their case is liable to be set aside. 6.11. The Appellant also made an application for condonation of 4 days delay in filing this appeal on the grounds that due to the ongoing pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have any source of income. Mere reimbursement of expenses cannot be termed as consideration bringing it within the ambit of supply. 7.3. He also submitted that the presence of two distinct persons is an essential element for 'supply' under GST. The liaison office is not an independent artificial person. It is registered in the name of the Company and does not have a separate existence in law. The liaison office and the HO are not related or distinct persons but working as employees of HO. Therefore, the activities of the liaison office are not covered under the definition of supply. He drew attention to the lower Authority's finding that the activities of the liaison office fall under clause (b) of the definition of business and not under clause (a). In this regard he submitted that the activities covered under clause (b) should be incidental or ancillary to activities covered under clause (a); that when the Authority admits that the activity of the liaison office is not covered under clause (a) it cannot be covered under clause (b) as well. 7.4. He also submitted that the Appellant is not required to register itself under Sections 22 or 24 of the CGST Act si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel . A body corporate incorporated outside India (including a firm or other association of individuals) desirous of opening a liaison office in India has to obtain permission from the Reserve Bank of India under the provisions of FEMA, 1999. 11. In this case, the Appellant has been granted permission by RBI vide letter dated 11-06-2014 to act as a liaison office for its Head office in Germany. We find from the records that the parent company in Germany is engaged in promoting applied research and development for the benefit of industry and society. The RBI permission has been obtained to set up a liaison office in Bangalore. As per the RBI permission, the liaison office shall undertake only permissible activities as mentioned in Schedule II of FEMA Notification No 22/2000 RB dated 3rd May 2000 as amended. The activities permitted as per the said Schedule II of FEMA regulation is as follows: Representing in India the parent company. Promoting export / import from / to India. Promoting technical/financial collaborations bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The liability to GST arises when there is a supply of either goods or services or both. According to Section 7(1)(a) of CGST Act, 2017, the expression supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. For an activity to be termed as a 'supply' within the ambit of Section 7(1) (a), it must be an activity which is done by (i) a person, (ii) for a consideration and (iii) the activity should be in the course or furtherance of business. Applying the above parameters to the facts of this case, we must see whether the Appellant's liaison office in India is a person' who is performing an activity 'for a consideration' which is in 'the course or furtherance of business'. We find that the RBI and FEMA regulations permits the Liaison Office in India to operate entirely out of the inward remittances received from its Head Office in Germany. The liaison office is not allowed to undertake any business activity in India or enter into any business contracts in its name or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'persons' who can be considered as related persons. The term 'person' is defined in Section 2(84) of the CGST Act to mean: (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a firm; (e) a Limited Liability Partnership; (f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013; (h) any body corporate incorporated by or under the laws of a country outside India; (i) a co-operative society registered under any law relating to co-operative societies; (j) a local authority; (k) Central Government or a State Government; (l) society as defined under the Societies Registration Act, 1860; (m) trust; and (n) every artificial juridical person, not falling within any of the above; 15. The Appellant's Head office in Germany is no doubt a 'person' by virtue of clause (h) of Section 2(84) of the CGST Act. However, the liaison office is not recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. The term 'taxable supply' is defined in Section 2(108) of the CGST Act to mean a supply of goods or services or both which is leviable to tax under this Act . We have already held that the activities of the liaison office do 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. When the liaison office is not required to be registered under GST, the question of whether they are a distinct person or establishment of distinct person is irrelevant. 18. In view of the above discussion, we pass the following order ORDER We set aside the advance ruling No KAR ADRG 50/2020 dated 08-10-2020 = 2020 (10) TMI 809 - AUTHORITY FOR ADVANCE RULING, KARNATAKA and answer the questions raised by the Appellant in the original advance ruling application and in this appeal, as follows: 1. The activities of the liaison off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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