Case Title | Fraunhofer-Gesellschaft-Zurforderung-Der Angewandten Forschung vs Appellate Authority. |
Court | Karnataka AAAR |
Honorable Judges | Member D.P.Nagendra Kumar & Member M.S.Srikar |
Citation | 2021 (2) GSTPanacea 41 HC Karnataka KAR/AAAR/04/2021 |
Judgement Date | 22-Febuary-2021 |
Council for Petitioner | M.S.Nagaraj Akbar Basha |
Council for Respondent | NA |
Section | Section 2(17) |
In Favour of | In Favour of Assessee |
The Karnataka Bench of Member D.P.Nagendra Kumar & Member M.S.Srikar has held that 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. Hence, there is no taxable supply and there is no requirement for obtaining a GST registration or payment of GST.
FACTS OF THE CASE
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
In this regard, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question:
“Whether the activities of a liaison office amount to supply of services?
Whether liaison office is required to be registered under CGST Act?
Whether liaison office is liable to pay GST?”
The AAR vide its order KAR ADRG No 50/2020dated 08thOct 2020 held as under:
“The liaison activities being undertaken by the applicant (LO) in line with the conditions specified by RBI amounts to supply under Section 7 (1) (c) of the CGST Act.
The applicant (LO) is required to be registered under CGST Act. The applicant (LO) is liable to pay GST if the place of supply of services is India.”
Aggrieved by the ruling given by the AAR, the Appellant has filed this appeal
COURT HELD
Considering the facts as recorded, held that 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. Therefore, bench hold that the activities of the Appellant as a liaison office does not amount to a supply of service. The activities of the liaison office are not a ‘supply’ under Section 7(1)(a) of the CGST Act and will also not be covered under the ambit of clause 2 of Schedule I of the said Act
As regards the requirement of registration under GST, Section 22 of 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 Rs 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”. Bench 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.
Bench set aside the advance ruling No KAR ADRG 50/2020 dated 08-10-2020 and answer the questions raised by the Appellant in the original advance ruling application and in this appeal, as follows:
- The activities of the liaison office do not amount to supply of services.
- The liaison office is not required to be registered under GST as there is no taxable supply.
- The liaison office is not liable to pay GST.
ANALYSIS OF THE JUDGEMENT
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 as a separate legal entity in India . The liaison office is registered with the Registrar of Companies in the same name as the parent foreign company. It does not have a separate legal existence in law.
As observed by us, the liaison office is not a separate entity under law. It is merely an extension of the parent company in Germany. When the liaison office is not a ‘person’ recognised as per law, the question of being a related person to the parent company does not arise. Thus,the finding of the lower Authority that the parent Company in Germany and the Appellant liaison office in India are deemed to be related persons is not correct.
The activities of the liaison office are not a ‘supply’ under Section 7(1)(a) of the CGST Act and will also not be covered under the ambit of clause 2 of Schedule I of the said Act.
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