Maharashtra AAAR holds activities performed by Liaison office for its overseas Head office as taxable supply

 

This Tax Alert summarizes a recent ruling of the Maharashtra Appellate Authority for Advance Ruling (AAAR). The ruling deals with applicability of Goods and Services Tax (GST) on activities undertaken by liaison office (LO) at behest of its overseas head office (HO).

Applicant is a liaison office of its Dubai head office and has been set up to play a key role in the growing trade and diplomatic relations between India and the United Arab Emirates (UAE).

Maharashtra Authority for Advance Ruling (AAR) had held that applicant connects businesses in India with those in UAE, which is nothing but supply of service. Further, it is satisfying all the conditions prescribed for an intermediary.

Disposing the appeal, AAAR observed that applicant is merely acting as a link between the businesses in India and Dubai. It is not arranging or facilitating the actual supply of goods or services. Therefore, the same will not render it as an intermediary between the businesses.

However, AAAR concluded that the applicant was undertaking multiple activities which could be construed as an individual independent supply in itself.  Since applicant was charging a single price to its HO in the form of monthly cost reimbursement, it held that the bunch of activities performed is a “mixed supply” and accordingly, liable to tax.

Comments

a. Ruling of AAAR is likely to generate a fresh debate on taxability of liaison activities carried out by the offices of overseas entities set-up in India. Evaluating the impact of the ruling basis the nature of activities performed by such offices would be critical from GST standpoint.

b. Considering the fact that there are divergent AAR / AAAR rulings on the issue, Government should consider issuing necessary clarification to eliminate unwarranted litigation.