GST

GST Applicability on EV Charging Stations

Introduction

India is one of a select group of nations that backs the campaign for electric vehicles (or “EVs”) worldwide. By 2030, the campaign hopes to sell at least 30% of new electric vehicles. The Department of Heavy Industry (DHI) has introduced the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) – I and FAME II policies in order to increase electric mobility and increase the proportion of electric vehicles in commercial fleets.

The achievement of the stated ambitious goal requires a comprehensive and accessible network of EV charging infrastructure. In this regard, the Indian government has implemented a number of initiatives to encourage the growth of the nation’s charging infrastructure network.

The battery that is installed inside an EV is what powers it. The electric vehicle’s battery gives it the power it needs to function, among other things. To promote electric mobility and expand the number of electric vehicles in commercial fleets, the Department of Heavy Industry (DHI) created the FAME – I and FAME II policies, also known as Faster Adoption and Manufacturing of Hybrid and Electric Vehicles.

It is crucial for individuals engaged in the business of EV charging stations to be aware of its taxability since the number of electric vehicles has eventually led to an increase in demand for EV charging stations as such stations are involved in the recharge of the batteries of electric vehicles.

The article discusses the GST Applicability on EV Charging Stations to provide clarity regarding the same. 

What Are The Techniques For Charging The Batteries?

The government has recognised the EV charging stations listed below in its regulations as a means of recharging batteries.

• PCS (Public Charging Station) – This is an example of an “EV charging station,” where someone can charge the battery for their EV.
• BSS stands for battery swap station-The Battery Swapping Station (BSS) is a station that makes it easy to switch out a battery that has been discharged or only partially charged for one that has been fully charged.
• A captive charging station (CCS)– It is one that is only used to charge EVs that belong to or are under the owner’s control (such as bus terminals, corporate buildings, etc.).

How Does an EV Charging Station Operate?

Any person wishing to operate a charging station must comply with the following conditions, which are listed by the Ministry of Power in its guidelines:

• PCS shall keep a customer database.
• A suitable civil job must exist.
• The right tools and infrastructure for fire protection
• The charging stations must have a transformer and safety equipment fitted.

Instead of the same, the battery cannot be charged without energy; DISCOM is charged with supplying the electrical connections for the EV charging infrastructure. When an EVSE is used to offer power to a customer, DISCOM receives the power supply needed to charge the EV batteries.

What Is the Process Of Charging The Battery?

The steps to charging a battery are described below:

• DC-based EVSE: The electrical energy from AC form, as received by the charging station is converted to DC form with the help of ESVE which is supplied to the battery via the socket installed in the EV
• Conversion of Electrical Energy into Chemical Energy: This conversion occurs when the electrical energy supplied by the EVSE (in AC/DC form) is converted via battery from electrical energy to chemical energy, which is done within the battery.
• Conversion of Chemical Energy into Electrical Energy for Operating EV: The EV is operated based on the electrical energy generated from converting the chemical energy stored in the battery. The battery releases electrical energy, which enables it to operate.

Application of GST to EV Charging Stations

• According to a clarification from the Ministry of Power about the Electricity Act 2003’s licensing requirements for charging stations, the use of electricity by the charging station is required in order to charge an EV battery via the station. The sale of electricity is not, however, a part of the activity.
• The clarification unequivocally states that the charging station’s operation qualifies as a service for providing battery charging. As a result, the stations are exempt from the Electricity Act’s licencing requirements.
• If someone chooses to charge an EV via PCS, the activity will be subject to GST; however, if the provision of electrical energy is considered to constitute a sale of power, GST will not apply.
• The key question in this situation is whether charging an electric vehicle (EV) battery falls within the category of providing energy, which exempts it from GST, or whether charging an EV battery is a general service provided by a charging station, which is subject to GST.

GST Rate and EV HSN Code

With the aim of expanding the market for electric vehicles, the GST rate for EVs has been decreased from 12 to 5%, and for chargers and charging stations, it has been decreased from 18 to 5%.

It should be mentioned that HSN Code 870240 governs the selling of electric vehicles.

What Are The Available EV GST Exemptions?

GST is not applicable to the rental of electrical buses with a capacity for more than 12 passengers by local authorities since it only applies to the sale of electric vehicles and any other services rendered by EV firms.

EV Charging Station Input Tax Availability 

• The main purpose of EV charging stations is to replenish the batteries of electric vehicles. This process entails moving electricity from the charging station to the battery, which is essentially a sale of electricity.
• However, the Ministry of Power clarified that charging EV batteries must be treated as a service that does not entail the sale of power while determining whether to give a licence under the power Act.
• The power reaches the consumer; its supply and consumption are recorded in meters placed by the electricity company, attracting GST, leading the Apex Court to hold electricity as a movable object.
• Due to the GST’s appeal, EV Companies are now entitled for tax credits based on the goods and services they use for their operations and any other costs or purchases that are not on the GST’s blacklist.
• Only taxpayers who use electric vehicles for transportation are qualified to receive GST; since the act of charging an EV is regarded as the sale of electricity, any services provided in connection with it are exempt from GST, allowing EV companies to claim any input tax credits.
• Since most individuals still charge their electric vehicles at home or in their workplaces, the infrastructure for EVs can currently be considered to be in the development stage.
• The difference in taxation occurs while charging EVs at home or work rather than at EV charging stations since the supply of power in households is excluded from GST.

Exempt GST on Charging an EV?

According to the Electricity Act of 2003′s

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need that charging stations get licenses, the Ministry of Power made it clear that the service of charging an EV battery by a charging station entails the charging station consuming electricity. There is no electricity being sold during the activity. The pertinent section of the aforementioned clarification is as follows:

If one follows the aforementioned stance under GST (i.e., that charging an EV by a PCS is a service provision), the activity of charging would be subject to GST at a rate of 18%. However, under the exemption notification given in relation to the goods and service Tax, the provision of electrical energy would be exempt5 from GST if classified as a sale of electricity.

The only issue that arises in the given situation with regard to GST is whether or not the process of charging the battery constitutes a supply of electricity (as a good) activity that is exempt from GST, as opposed to a charging station’s general service that would be subject to GST at the rate of 18%.

Electricity, what is it?

One must comprehend the nature of electricity and its properties before delving further into the lone issue of classification.

Under the Electricity Duty Laws, there was great discussion about whether electricity could be considered a “good.” In many instances, it was decided that even though electrical energy cannot be moved or touched like, for example, a piece of wood or a book, it nonetheless retains all the characteristics of movable property. The legal system has consistently categorised electricity as mobile property.

The Supreme Court ruled that the distinctive quality of electricity is that its sale and use occur concurrently in a case involving the applicability of the States’ Electricity Duty on the interstate supply of power.

The Apex Court ruled that the states cannot impose an electricity duty on the supply of electricity that is made between states. The following characteristics of electricity were noted by the Supreme Court in reaching its conclusion:

• Electrical energy is a movable good, hence things are mobile.
• In the case of electricity, supply, and consumption are continuous as soon as energy goes through the meters. Sales begin as soon as the meter reading is recorded.
• Consumption occurs at the same time as supply as soon as the electrical energy is delivered to the consumer and transferred through the meter. Its operations continue uninterrupted.

The act of charging would be free from GST in cases where it qualifies as the sale of electricity, as was already mentioned. On the other hand, 18% GST would be charged if it meets the criteria for service. Given this, choosing the appropriate classification becomes a crucial task.

The Ministry of Power made it clear that there is no electricity sale involved in the EV charging activity at the charging station because the electricity is used inside the space that belongs to the charging station. The battery charging service would count in the same way.

However, if one carefully applies the position adopted by the Supreme Court, as discussed in para 4, in the facts of the impugned issue then one can argue that the given clarification is not correct from the GST perspective.

The Ministry of Power’s explanation that a license under the Electricity Act would be necessary if, rather than charging an EV inside the charging station’s premises, a connection was made to the distribution system or another source of electricity seems appropriate given the purpose and goals of the Electricity Act.

Conclusion 

To sum up, when the act of charging meets the criteria for the sale of energy, it would be exempt from GST, however, if it meets the criteria for a service, it would be subject to GST. However, the reduction of the GST rate from 18% to 5% is a comfort.

FAQ

Read our Article:Legal Provisions Concerning Cancellation of GST Registration

1. https://powermin.gov.in/en/content/electricity-act-2003