GST is leviable on services provided by the Liaison Office to the Foreign Head Office

The AAAR, Maharashtra in Dubai Chamber of Commerce and Industry [Order No. MAH/AAAR/AM-RM/08/2022-23 dated June 23, 2022] has modified the order of the AAR, to the extent that, the activities performed by the Liaison Office ("LO") acting as link for communication, at the behest of foreign Head Office, cannot be considered as an intermediary. Held that, such activities will come under the ambit of "Supply", for which LO is liable to pay the Goods and Services Tax ("GST") and required to take GST Registration to discharge their liability, on the amount received from the Head Office.

Facts

Dubai Chamber of Commerce and Industry("the Appellant or DCCI LO") is the LO of the Dubai Chamber of Commerce and Industry, Dubai ("the Head Office") that provides services for connecting business partners in Dubai with businesses in India for a consideration from the Head Office. The Appellant is a non-profit organization, formed to represent, support and protect the interests of the Dubai business community in India, by creating a favourable environment, promoting Dubai businesses and supporting the development of business in India, wherein the Appellant undertakes certain liaison/representation activities in India, attending and representing the Head Office in various seminars, conferences & trade fairs, connecting businesses in India with business partners in UAE and vice versa, and organizing events & interactions with Indian stakeholders for sharing information about Dubai.

This appeal has been filed by the Appellant challenging the ruling passed by the AAR, Maharashtra vide Advance Ruling No. GST-ARA-35120 I9-20/B-14 dated May 24, 2021, holding that, that the activities undertaken by the Appellant will tantamount to those of "intermediary" as the Appellant is arranging and facilitating the supply of goods or services or both between the LO and the Head Office by connecting them by way of introductions/references, and therefore such activities will be covered under the ambit of "Supply" as provided under Section 7 of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), and accordingly, the Appellant are required to take GST registration and discharge their GST liability on the amount received from their Head Office. Further, it was held that, the Appellant is receiving consideration from the Head Office in excess of expenses incurred by it, and the Appellant cannot be treated as a non-profit organization.

The Appellant contended that neither the Appellant nor the Head Office is receiving any sort of consideration in the form of a fee or commission from any company in India for acting as a link between the LO and the Head Office. Further, all the expenses incurred by the Appellant (predominantly office rent, salaries, and consultancy services), are to be reimbursed from the Head Office on a cost-to-cost basis. Thus, no consideration is to be charged/ paid for such activities.

Issues

• Whether the activities performed by the Appellant shall be treated as supply under the GST?
• Whether the activities undertaken by the Appellant at the behest of their Dubai Head Office can be construed as that of an "intermediary"?
• Whether the Appellant is required to obtain the GST registration?
• Whether the Appellant is required to pay the GST.

Held

The AAAR, Maharashtra inOrder No. MAH/AAAR/AM-RM/08/2022-23, held as under:

• Observed that, the Appellant is merely acting as a link between the businesses in India and Dubai by sharing the details of the potential business partners of India or Dubai, and the Appellant is not arranging or facilitating the actual supply of any goods or services between the Indian businesses and Dubai businesses.
• Analysed the provision of Section 13(5) of the IGST Act, and noted that the Appellant is organising various events like seminars, conferences, round table discussions, etc. events in India. Therefore, the place of supply of such services will be in India.
• Stated that, the Head Office, is providing various services for which fees are charged from the Appellant. Thus, it is clear that Head Office appears to be a profit-making organization, and the activities undertaken are covered under the scope of "Commerce", "Business" and "Supply".
• Further noted that the Appellant is charging a consolidated amount from the Head Office. Thus, the bunch of activities undertaken by the Appellant is nothing but the "mixed supply" according to Section 2(74) of the CGST Act. Thus, GST is payable on the entire amount received from the Head Office for providing the said mixed supply of support services.
• Opined that the Appellant is providing support services to their Head Office, which attracts the GST at the rate of 18% as per the Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017 ("the Services Rate Notification").
• Modified the ruling passed by the AAR, to the extent that the Appellant is not acting as an "intermediary" as per Section 2(13) of the Integrated Goods and Services Tax Act, 2017 ("the IGST Act").
• Held that, the activities performed by the Appellant at the behest of their Head Office will come under the ambit of "Supply" in terms of Section 7(1)(a) of the CGST Act and are required to take the GST registration, and discharge their GST liability, on the amount received from their Head Office.

Our Comment:

• The AAAR, Karnataka in the matter of Fraunhofer-GessellschaftZurForderung [Advance Ruling No. KAR ADRG 50/2020, dated October 8, 2020] took a contrary stand that activities of the liaison office located in Bengaluru carrying out activities permitted by RBI, does 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 Section 7 of CGST Act and liaison office is required to pay GST and undertake registration.
• Similarly, the Hon'ble AAR, Tamil Nadu in the matter of Takko Holding GmbH [Order No. 14-AAR-2018, dated September 27, 2018]has held that liaison activities undertaken while acting as a communication channel between a parent company and an Indian supplier of goods, strictly in line with the condition specified by RBI permission letter does not constitute 'supply' under GST law. Hence, not liable to pay GST.
• The above order was in line with the order of the AAR, Rajasthan in the matter of HabufaMeubelen B.V. [Advance Ruling No. RAJ/AAR/2018-19/05, dated June 16, 2018].

In our view, relying on the decision of various precedents, it can be construed that the liaison office is a mere extension of the foreign Head office and no separate identity can be established nor can be termed as an intermediary. Further, activities undertaken by the liaison office shall not be covered under the definition of supply. Hence, there is no taxable supply and therefore shall not be liable to GST.

Relevant provisions

Section 7(1)(a) of the CGST Act

"Scope of supply-

7. (1) For the purposes of this Act, 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;"

Section 2(74) of the CGST Act:

"(74) "mixed supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply."

Section 2(13) of the IGST Act:

"(13). "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account."

Section 13(5) of the IGST Act:

"Place of supply of services where the location of supplier or location of recipient is outside India-

(5) The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held."