Analysis of MH AAR Ruling in World Economic Forum – India Liaison Office

In re World Economic Forum, India Liaison Office (AAR Maharashtra); AAR No. GST-ARA-11/2019-20/B-50; Dated: 20/08/2021

Recently Maharashtra Authority for Advance Ruling (‘AAR’) has issued an advance ruling in the matter of The World Economic Forum (WEF) – India Liaison Office (herein after referred as the Applicant). The applicant had approached Maharashtra AAR seeking a ruling on taxability of services rendered by its Head Office (H.O.), Switzerland to India Liaison Office (L.O.) and requirement to obtain GST registration.

A. FACTS OF THE CASE

• WEF is a not-for-profit organization based in Switzerland and operates as an independent international organization committed to improving the state of the world by engaging business, political, academic, and other leaders of society to share global, regional and industry agendas.
• Applicant is the Indian office of the WEF, established as Liaison Office (L.O.) to assist the WEF, Switzerland to undertake the Fourth Industrial Revolution activities in India to encourage, develop and facilitate cooperation activities in the fields of common interest.
• WEF has been granted permission from RBI as per FEMA regulations to set up LO in India which proposes to undertake liaising activities and act as a communication link between the HO and the companies in India to undertake the Fourth Industrial Revolution activities in India
• As per the RBI guidelines applicant shall not undertake any other activity of trading, commercial or industrial nature nor it shall enter any business contracts in its name.
• To operate the LO in India, the HO outside India assists in support of human resources, recruit employees in India to launch the LO operations in India.
• Funding of the above expenses is solely received from HO (as per RBI regulations) for undertaking the liaising activities. There is no other income received or payment made by the LO to the HO.

B. QUESTIONS RAISED BEFORE AAR

• Whether the activities carried by the Applicant’s Head office located outside India and rendered to the Applicant will amount to supply as envisaged under Section 7 of the Central Goods and Services Tax Act, 2017 considering that the Applicant is not engaged in any business?
• Whether the activities carried by the Applicant’s Head office located outside India and rendered to the Applicant would be liable to GST in the hands of the Applicant considering that the Applicant is not engaged in any business?
• Whether Applicant would be required to obtain registration in India under Section 24 of the Central Goods and Services Tax Act, 2017 with respect to activities carried out by the Applicant’s Head office located outside India and rendered to the Applicant considering that the Applicant is not engaged in any business?

C. OBSERVATIONS AND RULING OF THE AAR

• AAR referred to relevant provisions of GST law pertaining to supply and business which are reproduced below:

Section 7 of the CGST Act defines “Supply” to include following:

(a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business, and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

Para 4 of Schedule I of the CGST Act is reproduced below:

4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Section 2(17) of CGST Act defines “business” to include –

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub clause (a);

(c) to (i) ….

• FEMA Regulations, define the term ‘Liaison Office’ as under: –

“Liaison Office’ means a place of business to act as a channel of communication between the principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial/trading/industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel;’

• AAR observed that H.O. has provided support services to L.O. for which no consideration is being charged. In such case, Schedule I of CGST Act, 2017 comes into picture which deals with supply without consideration.
• Following conditions are required to be fulfilled for the transaction to be regarded as “Supply” in case of import of services:

(a) There should be a service imported into India;

(b) The services should be received from a related person’ outside India;

(c) The service is provided without consideration, and

(d) The said import of service must be in the course or furtherance of business

• Out of 4 conditions, 1^st three conditions are met by L.O. however the 4^th condition requires that import of service must be “in the course or furtherance of business”.
• AAR found that the Applicant is undertaking only liaising activities and act as a communication link between the HO and the companies in India. They are not permitted to undertake any commercial activities being a liaison office as per FEMA provisions and therefore their activities does not fall under the term ‘business’ as defined under CGST Act, 2017.
• In view of the above, AAR found that the Applicant is not undertaking any ‘business’ as defined under Section 2(17) of the CGST Act and therefore the activities/ services received by the Applicant from its HO cannot be said to be in the course or furtherance of its business and hence cannot be considered as supply under Section 7 of CGST Act, 2017 and neither the Applicant is liable to pay GST on import of services nor liable to obtain GST registration.
• AAR ruled the following on specific questions of applicant:

> Activities carried on by Applicant’s Head office located outside India and rendered to applicant do not amount to supply under Section 7 of CGST Act, 2017 and thus are not liable to GST.

> Applicant is not required to obtain GST registration in India under Section 24 of the CGST Act, 2017.

D. OUR COMMENTS

This ruling has clarified on important aspect that activities of liaison office (LO) are governed by terms & conditions put by Reserve Bank of India while granting the permission to set up LO. They are not permitted to carry out any commercial activities and earn any income. Their activities do not satisfy the requirement of being termed as ‘business’ as defined under Section 2(17) of CGST Act, 2017 and ‘Supply’ under Section 7 of CGST Act, 2017.

There have been earlier AAR rulings by AAR Haryana in Wilhelm Fricke SE– HAR/HAAR/R/2019-20/24 dated 28^th August 2020, by AAR Tamil Nadu in Takko Holding GmbH – 14/AAR/2018 dated 27^th September 2018, by AAAR Karnataka in Fraunhofer-Gessellschaft Zur Forderung der angewwandten Forschung e.V. – KAR/AAAR/04/2021 dated 22nd February 2021 wherein it has been held that activities of LO are not supply and thus not liable to pay GST and obtain registration.