Liaison offices of MNCs without revenue or clients not liable to GST

In what may offer relief to multinational corporations looking to expand their business with India without having a physical presence in the country, a ruling by Authority has exempted liaison offices of MNCs from levy of goods and services tax (GST).

The Rajasthan bench of AAR has ruled that if the liaison office in India does not render any consultancy or other services directly or indirectly, with or without any consideration and such office does not have significant commitment powers, except those which are required for normal functioning of the office, on behalf of Head Office, then the reimbursement of expenses and salary paid by the head office to it Liaison Office in India, is not liable to GST. Also, such liaison office is also not required to get itself registered under GST.

Though the AAR order is specific to the entity seeking relief, it could set the path for other similar operations to take relief from taxes on the principle of equity.

With regard to the present case, the AAR ruling came on an application made by Habufa Meubelen B.V. Jaipur which acts as the liaison office for Netherlands based Habufa Meubelen B.V. The applicant sought clarification whether it's activities in India were taxable and whether it would need to get itself registered under GST.


In the fact of the case, the Jaipur liaison office of Habufa Meubelen B.V. does not have any independent revenue or clients. The office has been established for the purpose of liasoning with the suppliers with regard to quality control of goods. The purchase order or contracts are entered with the clients with the HO and liaison office does not enter into any contract with the clients. Payments for the supplies are made by HO directly to the account of supplier and all the expenses incurred by liaison office is claimed from HO as per clear instructions of the RBI.

So, there have been no independent revenue stream for the liaison office and it is getting all its expenses paid by the HO. Moreover, the service being rendered by office of facilitating business of its parents is not made for any separate consideration and all what it gets is reimbursement from HO for paying the salary of the staff and for keeping the office operational.

Reading the definition of 'service' and 'supply' in harmony as given in the tax legislation, a conclusion can be drawn that a supply of service can be liable to GST only if a separate consideration is charged. If there is no consideration then it would not be liable to GST.


In the present context, there is no consideration charged by applicant from the HO in foreign country for any services. There is no amount received form HO except the funds for payment of salary, reimbursement of expenses like rent, security, electricity, travelling, etc, therefore the same is not a supply of service under GST law in absence of charging of consideration, the AAR ruled.

The liaison office is strictly prohibited to undertake any activity of a trading, commercial or industrial nature nor it is entering into any business contracts in its own name. Further, the reimbursement claimed by them from their HO is also falling out of the purview of supply of service. Therefore, there is no taxable supplies made by the Liaison office and hence, there is no requirement of getting registered under Section 22.

Further, applicant is not falling under any of the category of persons specified under Section 24 for obtaining compulsory registration under the Act. In view of the above interpretations of the provisions, applicant understands that they are not liable for obtaining registration under the GST, the AAR said.-IANS