GST on EV Charging (Part -1)

Nothing in this world is certain except death and taxes...EV Charging is not an exception.

An accessible and robust network of EV charging infrastructure is an essential pre-requisite to achieving the ambitious EV target India has setup for itself.

The battery in the EV provides the necessary power to the EV which?enables it to operate. There are different techniques for charging the EVs and EV batteries as recognized by the Government of India in its guidelines:

1. Public Charging Station (PCS) is an ‘EV charging station’ where a person can get the battery of its EV charged.
2. Battery Swapping Station (BSS) is a station where any electric vehicle can get its discharged battery or partially charged battery replaced by a charged battery.
3. Captive Charging Station (CCS) is ‘exclusively’ for the EV owned or controlled by the owner of the charging station

Charging Station Guidelines

The Ministry of Power in its guidelines?has clearly laid down various requirement which a person would be required to comply in order to operate a charging station. Few relevant requirements are as under:

• PCS should maintain the customers database
• There should be an appropriate civil work
• Appropriate fire protection equipment and facilities, Availability of transformer including safety appliance should be installed at charging stations,?etc.

The charging of a battery in EVs requires electricity. In this regard, the DISCOMs are made responsible for providing the electricity connections for EV charging infrastructure. The charging stations receives the power supply from the DISCOMs and using the EVCE it supplies the same to the customer.

GST on Charging EV – Is it 18% or Exempt?

The Ministry of Power in its clarifications?relating to the requirement of licensing by the charging stations under the Electricity Act, 2003 clarified that charging of an EV or EV battery by a charging station does not require a license but involves a service requiring the consumption of electricity by the charging station. The activity does not involve any sale of electricity. Hence the relevant paragraph of the clarification reads:

‘The charging of battery essentially involves utilization of electrical energy for its conversion to chemical energy, which get stored in the battery. Thus, the charging of battery of an electric vehicle by a charging station involves a service requiring consumption of electricity by the charging station and earning revenue for this purpose for the owner of the vehicle. The activity does in any way includes sale of electricity to any person as electricity is consumed within the premises owned by the charging station which may be connected to the distribution system or otherwise for receiving electricity. By the same logic, the activity does not involve further distribution or transmission of electricity.’

This clarification categorically provides that the activity by charging station would qualify as services of charging the battery and thus the stations would not require any license under the Electricity Act.

If one adopts the above position under GST (i.e.?charging of EV by PCS is supply of service), charging would attract GST at the rate of 18%. However, the supply of electrical energy, if treated as sale of electricity, would be exempted?from GST under the exemption notification.

Thus the question arises in the context of GST, is that whether the charging of battery is an activity of supply of electricity (as goods) and thus exempted from GST or alternatively it is an overall charging services by the charging station which would be subject to GST at the rate of 18%?

The classification of electricity as ‘goods’ was much debated under the Electricity Duty laws. In an issue relating to the applicability of Electricity Duty by the States on the inter-state supply of electricity, the Supreme Court held that the unique feature of electricity is that its sale and consumption takes place simultaneously. The Apex Court also held that states cannot levy Electricity Duty on the inter-state supply of Electricity. In drawing its conclusion the Apex Court has noted the following features of the Electricity:

• Electrical Energy is a movable item and hence goods
• In electricity the continuity of supply and consumption starts from the moment energy passes through the meters-?Sale simultaneously takes place as soon as meter reading is recorded
• As soon as the electrical energy is supplied to the consumer and is transmitted thorough the meter, consumption takes place simultaneously with the supply.
• There is no hiatus in its operation.

GST on EV Charging – Sale of Electricity or Service of Charging?

As discussed, where the activity of charging qualifies as sale of electricity, the same would be exempted from GST but would then become a licensed activity. On the other hand, if it qualifies as a service, 18% GST would apply. In view of this, the correct classification becomes the vital activity.

The Ministry of Power clarified that there is no sale of electricity in the activity of EV charging at charging station as the electricity is consumed within the premises owned by the charging station. The same would qualify as service of charging the battery.

The clarification of Ministry of Power that if instead of charging the EV within the charging station premises, the connection was provided to the distribution system or otherwise for receiving electricity then requirement of license under Electricity Act would arise. This seems correct considering the intent of the Electricity Act. This view however, cannot be adopted in context of tax laws especially GST.

Important to also note that in the process of EV charging, the supplied electricity energy in AC or DC form is converted into chemical energy, in either of cases within the battery.

One must also consider the fact that a charging station apart from providing electrical energy provides few ancillary services such as parking, remote reservation, provision of information on whether terminals are occupied,?etc.?In this case, the supply of electric energy to the EV is the main element of the transaction carried out by the charging station. The set of additional services supplied have the sole purpose of facilitating the access for electric vehicle to the charging point in order to have the EVs recharged.

Thus these set of services along with the supply of electricity would qualify as composite supply under GST. The treatment adopted for the supply of electricity would also be applicable to the set of ancillary services provided.

Conclusion

There exists the ambiguity on whether to treat the supply of electricity by the charging stations as the supply of electricity as goods or supply of services of charging.

Though the Ministry of Power in its clarification clearly concluded that the impugned transaction is a supply of services, however, in our view based on the science involved, the jurisprudence under the erstwhile laws and the position adopted under the EU VAT, it can well be argued that charging of electric vehicle in charging stations is the supply of electricity as goods for the purposes of GST laws.

It is highly recommended that Charge Point Operators jointly approach the GST Council to clarify the issue.

But there is an even bigger issue at hand - the arduous task of GST attachment at every charger if it is considered as a point of sale; keeping that discussion for Part -2 of this article.

Disclaimer:?The content/information written here is only for general information and open to discussion and debate. It should not be considered as legal advice. Please check with your Tax consultant from a compliance perspective.