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The Maharashtra AAR has held that services rendered by the Head Office of World Economic Forum (WEF) located outside India to its liaison office (LO) here will not attract Goods and Services Tax (GST).
The Switzerland based WEF, globally known for its annual summit at Davos and India Economic Summit, established the World Economic Forum Centre for the Fourth Industrial Revolution in San Francisco, US. WEF has an LO in India to undertake the Fourth Industrial Revolution activities in India. WEF has been granted permission by the RBI under Foreign Exchange Management Act for the LO.
Liaison office connecting India biz with Dubai HO, an ‘intermediary’ under GST
The LO will not undertake any other activity of trading, commercial or industrial in nature, it was said when granting permission. The entire expenses of the LO will be met through remittance of foreign exchange by WEF. The LO moved the AAR seeking advance ruling on three issues: whether activities by the head office will be considered as supply, whether this will attract GST and whether it has to take registration under GST law.
The AAR observed that the LO is not undertaking any ‘business’ as defined in the law and therefore the “activities/services received by the applicant from its HO can not be said to be in the course or furtherance of its business and hence cannot be considered as supply under GST law. Accordingly, no GST will be levied and also the applicant will not be required to take registration here under GST law.”
Two key factors
According to Kalpesh Shah, Senior Partner with Lakshmikumaran & Sridharan Attorneys, two factors weighed with AAR. One that the WEF and therefore, LO was not undertaking any business activities. Second that, the import of service was without consideration. Therefore, the decision of the AAR is not relevant where the establishment in India is a liaison office of an entity engaged in any business activity.
“...Schedule I of the CGST deems transactions between related parties and branches of the same legal entity as a taxable supply even if the same is made need without any consideration. However, due to a usually symbiotic relationship between branch and HO of the same legal entity it may not always be possible to identify all the supplies being made and when such supplies are being made and the flow of these services. Therefore, this decision cannot be applied in case of a liaison office of non-business entity without examining the facts of that case in detail,” he said.
Contrary stand
Earlier, the Maharashtra AAR had held that LO of Dubai Chamber of Commerce & Industry (DCCI), providing services of connecting business partners in Dubai with businesses in India for a consideration from the Dubai Head Office (HO), is an ‘Intermediary’ under GST law.
MNC’s liaison office not required to pay GST: AAAR
However, Karnataka AAAR in the matter of Fraunhofer-Gessellschaft Zur Forderung took a contrary stand that activities of liaison office located in Bengaluru, to carry out activities permitted by RBI, do not amount to “supply of service” and set aside the AAR ruling which held that liaison activities being undertaken by appellant amounts to supply under GST law and LO is required to pay GST and undertake registration.
Tamil Nadu AAR, in the case of Takko Holding GmbH and Rajasthan AAR in the case of Habufa Meubelen B.V. held that activities by LO is not supply.
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