In re World Economic Forum, India Liaison Office (AAR Maharashtra)
Question 1. 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 Act, 2017 considering that the Applicant is not engaged in any business?
Answer: – Answered in the negative.
Question 2. Whether the activities carried by the Applicants 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?
Answer: – Answered in the negative.
Question 3. Whether Applicant would be required to obtain registration in India under Section 24 of the Central Goods and Service 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?
Answer: – Answered in the negative.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
The present application has been filed under Section 97 of the Central Goods and Services Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively ] by M/s. The World Economic Forum, India Liaison Office, the applicant, seeking an advance ruling in respect of the following revised questions.
(i) 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 Service Tax Act, 2017 considering that the Applicant is not engaged in any business?
(ii) Whether the activities carried by the Applicants 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?
(iii) Whether Applicant would be required to obtain registration in India under Section 24 of the Central Goods and Service 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?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST
2. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions made by the applicant is as under:-
1. The World Economic Forum (WEF) is a public interest, not-for-profit organization set up in 1971 and based in Switzerland, 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.
2. The WEF’s strategy is to bring together the most relevant leaders from all sectors of global society, and identify the best ways to address the world’s most significant challenges. The World Economic Forum helps create awareness and co-operation and creates impact by gathering leaders from business, government, international organizations, academia, civil society and youth to work together to drive positive change. The WEF helps shaping mindsets and agendas and publishes flagship reports, policy frameworks and strategies which in turn influence government priorities, business strategies and public opinion. It also helps in driving a collective action. The projects and collaborations started or supported by the WEF impact millions of people, from saving lives through childhood vaccination to improving the productivity of small-scale farms.
3. The WEF is primarily engaged in promoting global well-being and finding solutions to problems which are a global agenda and focuses on the following key areas:
a. Mastering the Fourth industrial revolution: Over the next decades, the world will witness changes tearing through the global economy with an unprecedented speed, scale and force which will transform the entire systems of production, distribution and consumption. The activities of the WEF are focused to address the ways these changes would affect the entire world and their impact on future generation This would also include reshaping the economic, social, ecological and cultural contexts
b. solving the problems of the Global Commons: The WEF is focused to tackle global problems with new models of public-private cooperation and the application of breakthrough science and technology solutions.
c. Addressing Global security issues: Another focus area of includes developing strategies for leaders to respond to the rapidly changing security landscape
4. In relation to one of the key focus areas, The WEF has established The World Economic Forum Centre for the Fourth Industrial Revolution in San Francisco (WEFC), which is a new area for global cooperation and is an integral part of the its strategy which will support its ongoing initiatives. The WEF is working to speed up the benefits of science and technology for society and has created a global hub of expertise, knowledge-sharing and collaboration in San Francisco to achieve this objective. The Fourth Industrial Revolution is transforming entire systems of production, distribution and consumption, providing opportunities for new value creation through game-changing technologies. In the Centre for the Fourth Industrial Revolution Network, various projects cover the following areas of technological innovation:
– Artificial Intelligence and Machine Learning;
– Internet of Things and Connected Devices;
– Blockchain and Distributed Ledger Technology;
– Autonomous and Urban Mobility;
– Drones and Tomorrow’s Airspace;
– Precision Medicine
– Fourth IR for the Earth
– Data Policy
– Digital Trade
5. Applicant is the Indian office of The WEF, established as Liaison Office (‘LO) to assist the WEF to undertake the Fourth Industrial Revolution activities in India to encourage, develop and facilitate cooperation activities in the fields of common interest associated with readiness for the said Revolution, pursue research and develop and deploy policy principles & regulatory framework. The LO is the same legal entity as WEF, Switzerland.
6. In this regard, the WEF has been granted permission from Reserve Bank of India (‘RBI’) as per the Foreign Exchange Management (Establishment in India or a branch office or a representative office or a project office or any other place of business) Regulations, 2016 (‘FEMA Regulations’) framed under the Foreign Exchange Management Act, 1999. The LO is set up at Navi Mumbai – 400 701, subject to various conditions.
7. The Applicant 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. The Applicant proposes to carry out the following activities:
a. To represent The WEF/its group companies in India;
b. To act as a communication channel between The WEF/its group companies and Indian entities, to identify potential members in India for WEF’s programs and to facilitate meetings with such potential members/applicants in India;
c. To assist The WEF’s participation in undertaking socially useful projects;
d. To assist The WEF’s participation in undertaking socially useful projects;
e. To assist The WEF in making efforts to increase awareness in India about its programs and global agendas; and
f. To carry out activities that may be connected to and/or incidental to the Centre for the Fourth Industrial Revolution (C4IR) by co-designing and implementation of policy and governance pilots aligned with the C4IR, including pursing research, developing and deploying policy principles and regulatory framework for such C4IR activities.
The above is evident from the application made to the RBI for the setup of LO in India and the resultant permission granted by the RBI, included under Exhibit 2.
8. Except the proposed liaison work as mentioned above, Applicant shall not undertake any other activity of trading, commercial or industrial nature nor shall it will enter into any business contracts in its name in view of ‘Master Circular on Establishment of Liaison /Branch/ Project Offices in India by Foreign Entities’ bearing reference no. 7/2015-16 dated 01 July 2015 (Master Circular No. 7/2015-16 dated 01 July 2015). The said Circular refers to Notification No. FEMA 22/2000-RB dated 3 May 2000 (‘Notification No.22’) notifying the FEMA regulations for establishment of a LO in India under the powers Conferred by Section 6(6) of the Foreign Exchange Management Act, 1999.
9. Further, as prescribed by the Master Circular No. 7/2015-16 dated 01 July 2015 and Notification No 22, entire expenses of the Applicant in India will be met entirely through Inward remittances of foreign exchange received from The WEF located outside India.
10. In relation to the remittance received by the Applicant from the WEF located abroad, there is no supply since it is neither engaged in any business activity nor is it permitted to execute any business contracts in its own name without RBI’s prior permission. There is no consideration/fees charged or any other remuneration received/earned by the Applicant and the remittance received from the LIO is only for meeting expenses of the Applicant as per master circular no. 7/2015-16 dated 01 July 2015.
11. Further, the Applicant submits that for the purpose of operating the LO in India, the HO outside India assists in support of human resources, recruit employees in India in order to launch the LO operations in India, IT support to set up necessary infrastructure, advise on any accounting, internal control processes, project coordination, and other management guidance for the C4IR India Management team. As the said activities are in relation to set up and administration of the LO office and the RBI permissible activities that it undertake viz liaising in nature and does not involve any business activities.
12. It would be relevant to highlight that other than the funding of expenses 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.
13. It is a settled position under the GST law that the liaising activities undertaken by an Indian liaison office for its overseas HO is not liable to tax given that it is a not in relation to furtherance of business or commerce. Since the LO is restricted under the RBI regulations to undertake any activities other than of liaising (i.e. acting as a communication channel between its head office and parties in India), the same is not a taxable supply under Entry 2 of Schedule I of the COST Act and accordingly, there is no requirement to register and pay GST.
14. Applicant is specifically seeking ruling for the case where the above-mentioned support extended by the HO located outside India to the Applicant in India for setting up the LO and in administration of the liaising operations. As mentioned, there is no consideration that is being charged by the HO to the LO for the same. Entry 4 of Schedule of the CGST Act creates a deeming fiction for taxing imports made by a person in India from a related person or from any of his other establishments outside India, in the course or furtherance of business, without any consideration.
APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS. AS THE CASE MAY BE, IN RESPECT OF THE QUESTIONS (S) ON WHICH ADVANCE RULING IS REQUIRED
Q1. Whether the support extended by the HO located outside India to the Applicant in India in relation to set up and operation of the LO in India (for carrying out its liaising activities) without any consideration would qualify as ‘deemed supply under Entry No. 4 of Schedule of the Central Goods and Services Tax Act. 2017 (‘CGST Act’) and thus be liable to lax?
POSITION IN LAW AND APPLICANT’S UNDERSTANDING OF THE SAME
1. The applicable statutory provisions are outlined herein below for ease of reference : –
a. Section 7 of the CGST Act (amended) defines the supply as follows:
(1) For the purposes of this Act, the expression “supply” includes
(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;’
b. Schedule of the CGST Act provides list of activities which are to be treated as supply even if the same is made without any consideration:
‘Activities to be treated as supply even if made without any consideration:
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
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.
c. Section 2(102) of the CGST Act defines the term ‘services’ as follows:
“Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged”
d. Section 2(17) of the CGST Act defines the term ‘business’ as follows:
“business” includes –
(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) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business,
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members,
(f) admission, for a consideration, of persons to any premises,
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club, and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities,
2. Section 7 of the CGST Act interalia provides that the expression ‘supply’ includes the supplies specified under Schedule 1 of the CGST Act made without consideration. Entry 4 of Schedule of the CGST Act includes 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. Thus, in view of the facts of the present case, in order to specifically qualify an activity as ‘supply’ under Entry No. 4 of Schedule 1, the following key conditions are required to be fulfilled:
(i) There should be a service imported into India;
(ii) The services should be received from a related person’ outside India;
(iii) The service is provided without consideration, and
(iv) The said import of service must be in the course or furtherance of business
3. In applicant’s view, the fourth condition as stated above is not being satisfied in the present case because the Applicant does not carry out any business activity in India.
4. Applicant established in India does not conduct ‘business’ as defined under the CGST Act
4.1. Under the GST regime, any form of ‘supply’ is liable to tax provided it qualifies under the meaning of ‘supply’ prescribed under Section 7 of the CGST Act. One of the essential requirements to be met for any activity to qualify as ‘supply’ is that the same should be in the course or furtherance of business’.
4.2. Applicant submits that its activities to be carried out, do not get covered under the definition of business’ under the CGST Act. An extract of the definition of ‘business’ provided under Section 2(17) of the CGST Act has already been mentioned above.
4.3 From the above definition, in order to qualify as ‘business’, the applicant’s activities should fall within the scope of sub-clause (a) and (b) of Section 2(17) of the CGST Act.
The commonly referred dictionary definitions have been produced below to understand scope of the terms ‘trade’, ‘commerce’, manufacture’, profession’ as used in sub-clause (a) and (b) of Section 2(17) since the same has not been defined under the CGST Act.
Trade:
As per Words and Phrases Legally Defined’ 3rd Edn – trade in its primary meaning is the exchange of goods for goods or goods for money and in its secondary meaning it is any business carried on with a view to profit, whether manual or mercantile, as distinguished from the liberal arts, or learned professions and from agriculture.
Commerce:
As per the Black’s Law Dictionary – commerce is exchange of goods and services, especially on a large scale involving transportation between cities, states and nations.
As per the Concise Oxford Dictionary – commerce is exchange of merchandise, especially on a large scale
Profession:
As per the Black’s Law Dictionary, profession means A vocation requiring advanced education and training especially one of the three traditional learned professions – law, medicine, and the ministry.
As per the Concise Oxford Dictionary – profession means among other things, vocation, and calling, especially one that involves some branch of learning or science, as the learned profession (divinity, law and medicine). A profession is normally associated with the exercise of intellectual or technical equipment resulting from learning or science.
Manufacture:
Section 2(72) of the CGST Act defines manufacture as processing of raw material or inputs in any manner that results in emergence of a new product having a distinct pame, character and use.
4.4 In order to draw a line of difference between the nature of activities construed as ‘business’ under the GST legislation and the applicant’s activities, the activities proposed to be carried by the Applicant are provided below in brief:
a. Representing and acting as communication link between the ILO and the Indian entities to identify and source potential members;
b. To assist the HO in participating in social projects, promote its collaborations with entities in India and globally, and increasing awareness in India about its programs and agendas;
c. To carry out activities in connection to the CHIR, such as research, developing and deploying policies and regulatory framework.
4.5 It is clear that the proposed activities of the Applicant do not fall under any of the clauses under the definition of ‘business’ as explained below:
