#TaxmannAnalysis | Taxability of EV Charging Stations from a GST Perspective

CHARGING ELECTRIC VEHICLE BY CHARGING STATIONS EXEMPT OR 18% GST? Taxmann’s Research And Advisory (Indirect Tax) Team

CHARGING ELECTRIC VEHICLE BY CHARGING STATIONS EXEMPT OR 18% GST? Taxmann’s Research And Advisory (Indirect Tax) Team

Contents

Background of Charging Stations 5 GST on charing EV – 18% or exempt?

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Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

GST on EV charging Sale of electricity or service of charging?

15

4

How charging station operates?

8 Electricity, what it is?

13 Conclusion 18

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

1.

BACKGROUND OF CHARGING STATIONS

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India is among a handful of countries that support the global electric vehicle (‘EV’) 30@30 campaign. The campaign have a target to at least 30% new vehicle sales be electric by 2030.

In view of boosting the electric mobility and increase the number of electric vehicles in commercial fleets, the Department of Heavy Industry (DHI) has introduced the Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) – I and FAME II policies.

An accessible and robust network of EV charging infrastructure is an essential pre-requisite to achieving the said ambitious target. In this regard, the Government of India has instituted various policies to promote the development of the charging infrastructure network in the Country.

The functioning of an EV is based on the battery installed in it. The battery provides the necessary power to the EV which inter-alia enables it to operate

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

There are different techniques for charging the batteries. The few important techniques as recoginsed by the Government in its guidelines1 etc. are summarized as under: Sl. No.

Charging Station

Comments

1.

Public Charging Station (PCS)

The PCS is an ‘EV charging station’ where a person can get the battery of its EV charged.

2.

Battery Swapping Station (BSS)

The 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)

It a charging station ‘exclusively’ for the EV owned or controlled by the owner of the charging station (such as Bus Station, Corporate Houses, etc.)

The EV charging involves supply of direct current (DC) to the battery pack. As electricity distribution systems supply alternate current (AC) power, a converter is required to provide DC power to the battery.

The charging stations may either have an AC based EVSE or DC based EVSE. The Electric Vehicle Supply Equipment (‘EVSE’) is the basic unit of EV charging infrastructure. The EVSE accesses power from the local electricity supply and utilizes a control system and wired connection to safely charge EVs.

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In the case of an AC EVSE, the AC power is delivered to the onboard charger of the EV, which converts it to DC. On the other hand, the DC EVSE converts the power externally and supplies DC power directly to the battery, bypassing the on-board charger.

Irrespective of the type of EVSE, the battery receives the electricity and converts the electric form in to the chemical form and stores the same.

The below roadmap2 of building EV infrastructure indicates that India would use both types of EVSEs (i.e. AC based as well as DC based EVSE): Vehicle Segment

Sharing

Charger Types

Number of chargers

of Public

by

Charging E-2 Wheeler

10%

E-3 Wheeler (Passen- 20%

2025

2030

Single Phase 15A Charger 634

3866

Single Phase 15A Charger 2,557

9826

Type-2AC (70%)

32

306

262

2303

ger/cargo) E-car (personal)

10%

50KW DC Charger (30%) E-Car (Commercial)

25%

Type-2AC (60%)

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

50KW DC Charger (40%)

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Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

2.

HOW CHARGING STATION OPERATES?

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The Ministry of Power in its guidelines3 has 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

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There should be an appropriate civil work

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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 EVSE it supplies the same to the customer

2.1.

How Battery is charged? – Process

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

The step-wise procedure involved in charging of battery is discussed in the below mentioned paragraphs 2.1-1.

Supply of electrical energy by DISCOMs to Charging Station (Step-1)

The DISCOM provides the electricity to the charging stations required for charging the EVs 2.1-2. Supply of electrical energy by Charging Station PCS to EV

Battery (Step-2) AC based EVSE (Electric Vehicle Supply Equipment) The electrical energy in AC form received by the charging station from DISCOM is supplied to the battery in the same form through the socket installed in the EV DC based EVSE (Electric Vehicle Supply Equipment) The electrical energy in AC form received by the charging station from DISCOM is converted in to the DC form by the EVSE (based 9

on the adaptor) and the DC form of electric energy is supplied to the battery through the socket installed in the EV 2.1-3. Conversion of electrical energy in to chemical energy

(Step-3) The electrical energy supplied by the EVSE (in AC/DC form) is converted ‘by the battery’ from the electrical energy to chemical energy. The battery stores the energy into the form of the chemical energy.

We may note that the conversion activity of electric energy in to the chemical energy takes place within the battery.

2.1-4. Conversion of Chemical Energy in to Electrical Energy for

operating EV (Step-4)

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

The EV is operated based on the electrical energy which is generated from the conversion of the chemical energy stored in the battery. The battery releases the electrical energy which enables it to operate

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Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

3.

GST ON CHARING EV – 18% OR EXEMPT?

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The Ministry of Power in its clarification4 relating to the requirement of licensing by the charging stations under the Electricity Act, 2003 clarified that charging of an EV battery by a charging station involves a service requiring the consumption of electricity by the charging station. The activity does not involve any sale of electricity.

Relevant para of the said clarification reads as under: ‘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.’

The above 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 licence under the Electricity Act If one adopts the above position under GST (i.e. charging of EV

by PCS is supply of service), the activity of charging would attract GST at the rate of 18%. However, the supply of electrical energy, if treated as sale of electricity, the same would be exempted5 from GST under the exemption notification issued in respect of the goods

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

Thus the solitary question that arises in the given case, in 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%.

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Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

4.

ELECTRICITY, WHAT IT IS?

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Before deep diving into the solitary question of classification, one would need to understand the nature of electricity and its features The classification of electricity as ‘goods’ was much debated under the Electricity Duty Laws6. It was held in many cases7 that merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. The judiciary repeatedly classified the electricity as the moveable property.

In an issue relating to the applicability of Electricity Duty by the States on the inter-state supply of electricity, the Supreme Court held8 that the unique feature of electricity is that its sale and consumption takes place simultaneously.

If we briefly discuss the background of the above case then one may understand that Entry no 92A in List I of schedule VII of the Constitution enables the ‘Parliament’ to legislate laws relating to the ‘interstate Sale or purchase of goods other than newspaper’.

The entry was inserted in the Constitution by the Constitution (Sixth Amendment) Act, 1956. Further, Entry No 53 of Schedule II of the Constitution enables the ‘State legislature’ to legislate laws relating to the levy of ‘tax on sale or consumption of electricity’.

Notably, the Entry No 53 was not providing anything whether it is subject Entry 92A or not. The question arose that whether states can levy duty on inter-state supply of electricity as Entry no 53 was not subject to the newly introduced Entry no 92A To put in simple words, the States were arguing that they are very well entitled to charge electricity duty on the inter-state supply of electricity as Entry No 53 is not subject to Entry no 92A

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

The Apex Court held otherwise that is the 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:

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-

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.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

5.

GST ON EV CHARGING SALE OF ELECTRICITY OR SERVICE OF CHARGING?

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As already discussed where the activity of charging qualifies as sale of electricity, the same would be exempted from GST. 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 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 GST perspective There is no gap/hiatus between the sale and consumption in the case of electricity i.e. both takes place simultaneously. If both the activities are taking place simultaneously then would it be right to treat the impugned transaction as service merely on the ground that the consumption takes place within the premises of charging station.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

If one takes the example of the electricity supplied at our homes then in such case also the consumption takes place immediately once we switch on the power button and plug in any device. In this case, the activity is treated as supply of goods by DISCOMS9.

The mere difference between these two cases is that we use the electricity for various purposes at home but in the impugned case the electricity is used especially for the one purpose i.e. charging the EV. But in both cases the fact remains same that there is a supply of electricity.

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, seems fine considering the intent and objective of the Electricity Act. In our view, the same cannot be adopted in context of tax laws.

Here it is also to be noted that an EVSE can either supply the electricity energy in AC or DC form. The conversion activity of electrical energy in to chemical energy in either of cases takes place within the battery (as already explained in para 2.1 of this document).

Given the above, in our considered view, the impugned activity by charging station can be well argued to be classified as the Sale of electricity under GST and thus exempted.

If one takes the reference of the position adopted under the EU VAT, there the ‘supply of goods’ has been defined10 as the transfer of the right to dispose of tangible property as owner. Further, the electricity, gas, heat or cooling energy and the like are treated11 as tangible property.

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In a working paper dealing with ‘VAT rules applicable to transactions related to the recharging of electric vehicles’12, it was categorically clarified that the transaction carried out by the charging point operator providing the electricity for recharging the battery shall, in accordance with Articles 14(1) and 15(1), be considered as a supply of goods.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

One may also take note to the fact that a charging station apart from providing the electrical energy provides few ancillary services such as parking facility, remote reservation, provision of information on whether terminals are occupied, etc. In this case, the supply of electric energy to the battery 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 their battery 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 said set of ancillary services.

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Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

6.

CONCLUSION

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In view of our discussion in this document that 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.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

It is highly recommended that the relevant trade bodies, supplies etc. should approach the GST Council and CBIC to clarify the issue at the earliest.

1.

2.

3.

4.

5.

6.

Guidelines Reference no – 12/2/2018-EV (Comp No. 244347) dated January 14, 2022 Handbook of Electric Vehicle Charging Infrastructure Implementation Guidelines Reference no – 12/2/2018-EV (Comp No. 244347) dated January 14, 2022 Clarification No 23/08/2018-R&R Dated 23 April 2018 Sl. No. 104 of Notification No 2/2017 Central Tax (Rate) dated 28-06-2017 The Madhya Pradesh Electricity Duty Act, 1949; Andhra Pradesh Electricity Duty Act, 1939, etc.

7. Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur - [1969 (2) SCR 939] 8. Indian aluminium Co. etc. v. State of Kerala &Ors. [(1996) 7 SCC 637]; State of Andhra Pradesh Vs NTPC [2002] 2002 taxmann.com 2376 (SC) 9 Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur - [1969 (2) SCR 939] 10. Article 14(1) of the VAT directive 11. Article 15(1) of the VAT directive 12. Working Paper 969 dated May 13, 2019 – Subject: VAT rules applicable to transactions related to the recharging of electric vehicles 19

About Authors Sunil holds expertise in laws relating to GST, Customs Duty, Foreign Trade Policy and other erstwhile Indirect Tax laws (such as Service Tax, VAT, etc.). Sunil has wide range of experience in multiple sectors including Auto, Capital Goods, Consumer Durable, Media and Entertainment, Publications, Telecom, ITeS, etc.

Highlights

Sunil Kumar (Author)

•

6+ years of experience in Indirect Taxation

•

Experience in Advisory, Health Checks, Advocacy Support, Contract Reviews, GST Implementation, etc.

•

Actively writes and speaks on various ongoing Indirect Tax issues

•

Previously worked with KPMG and NITYA Tax Associates

Monika is a young enthusiastic Chartered Accountant qualified in May 2016. She is associated with Taxmann team from January 2022.

She handles Indirect Tax issues relating to various sectors including Auto, Education, Media& Entertainment, Tourism & Hospitality, etc.

Highlights

Monika Singla (Co-Author)

•

5+ years of post-qualification experience

•

Post qualification major experience in Indirect Tax laws

•

Previously worked with AKGVG & Associates

Ashwani Is an electronics engineer with an experience of 7 years in the field of Electronics and Communications and two years of experience in the IT industries.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

Highlights (Experience)

Ashwani Singla (Technical Reviewer)

•

Hardware and circuit designing

•

Embedded systems

•

Application Developments

•

Robotics

•

Machine Learning and artificial intelligence

Swadhin is a fourth-year student currently pursuing BBA.LLB from Symbiosis Law School, Hyderabad. He has studied different branches of law including Intellectual Property Laws, Taxation Laws, etc. He has joined Taxmann Indirect Tax Research and Advisory Team as a Legal Intern.

Highlights

Swadhin Khatua (Co-Author)

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•

Actively involved in research support on various ongoing Indirect Tax issues

•

Possesses a very good academic background

•

Formerly interned with BBR Legal Advocates and Legal Consultants, KG Law Offices, etc.

Charging Electric Vehicle by Charging Stations - Exempt or 18% GST?

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