According to FEMA Regulations ,A 'Liaison Office' means a place of business to act as a channel of communication between the principal place of business or Head Office or 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.

Thus, it can be apprehended that the role of liaison office is limited to acting as a communication channel between the head office and the Indian customers. It is prohibited to undertake any income generating activities. In other words it receives only reimbursements from the head office for the expenses incurred.

Section 7 of the Central Goods and Services Act, 2017 defines supply as :

Why can’t Liaison Services be included under Distinct Persons and thus forms part of Schedule I

Section 25 of the CGST Act defines distinct persons as "A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act".

This logic of distinct person cannot be applied in case of Liaison office because a liaison office does not operate independently from its head office or principal. Further, a liaison office is not allowed to carry out any activities at all. It is just the face of a foreign entity in India, while as the operations are carried out from outside in India.

There is no supply involved in case of Liaison Services. Thus the activities undertaken by the liaison office and expenses reimbursed by the head office to the liaison office are not liable to GST.

The same have been Strengthened by the following Advance Ruling :

In case of M/s. Takko Holding GmbH which is a company incorporated in Germany. They are permitted by the RBI to have liaison office of the Company (hereinafter referred to as 'Takko' or the 'Applicant'). The Applicant is not registered under GST. The Applicant is acting as a communication channel between the parent company located outside India and the Indian companies. The applicant does not charge any fees/commission or does not earn any remuneration or income for the liaison services rendered by it.

And it was discussed that no consideration is being charged for the activities undertaken by the Liaison office and the liaison office does not have any business activities of its own. Further, the Liaison office and the head office are not related persons as there is only one legal entity and no relationship can be established. They are not distinct persons as per Section 25 of the CGST Act as distinct person has establishments in more than one State or Union territory. Therefore, the services provided by the Liaison office do not amount to supplies.

As there is no supply of services, the Applicant would not be a supplier and, hence, is not required to obtain registration under the CGST/SGST Act.

And the following Rulings were sought:

• The liaison activities are in line with the conditions specified by the RBI and it does not amount to supply under CGST and SGST Act.
• Therefore, the applicant is not liable to pay CGST, SGST or IGST.
• The applicant is not required to get itself registered under GST for the liaison activities.

Conclusion

Liaison office is only a communication channel between the Head office and the Indian customers and does not undertake any income generating activities of its own. Further, it does not charge any separate consideration for the services provided to the Head Office.

Since it is difficult to distinguish between a liaison office from the principal office, the services provided by the Liaison Office do not fall under the purview of the term 'supply' under GST and, hence, Liaison office is neither required to pay GST nor to get registered under the GST regime.

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