Electrical energy is categorized as good under the GST law, however, its supply is exempt from or maintained outside the scope of the GST law.
An AAR directive states that charging electric batteries at public stations constitutes the provision of a service and would be subject to GST, dealing a blow to EV users.
The use of electric vehicles (EVs) as a more environmentally friendly substitute for combustion engines is being promoted by the government, but a recent decision by the Karnataka Authority for Advance Ruling (AAR) may temper the enthusiasm. The AAR decision states that there will be an 18% GST charge for EV battery charging at public outlets.
The issue occurred when Chamundeshwari Electricity Supply Corporation Ltd. intended to establish public charging stations (PCS) for both two-wheelers and four-wheelers.
According to Chamundeshwari Electricity, these PCS would receive electric power. These public charging stations are available to all owners of electric vehicles for battery recharging. It intended to send tax bills and tally a “electric vehicle charging fee”.
The energy rates plus the service charges would make up this fee. Energy charge and service charge both refer to the quantity of energy utilised and the services rendered, respectively.
The applicant asked the AAR whether energy charges can be treated as exempt under GST law—as it is a supply of electrical energy (“goods”), GST is only levied on service charges (as supply of services)—or whether it must consider both energy charges and services charges together as “supply of service” for the purpose of payment of GST on total charges.
Electrical energy is categorized as a good under the GST law, however, its supply is exempt from or maintained outside the scope of the GST law.
The Ministry of Power’s clarification of the Electricity Act of 2003’s need that charging stations obtain a license (letter 23/08/2018- R&R dated 13.04.2018) was the main source on which the AAR based its decision. According to the clarification, charging a battery included using electrical energy to transform it into chemical energy, which was then stored in the battery. Since electricity is used inside the space held by the charging station, this activity does not entail selling any electricity to anyone. As a result, the charging station won’t need to apply for an Electricity Act licensing.
The electrical energy might be used as a consumable while the battery is being charged, according to the ARR. In other words, the EV owner is granted permission to utilize the infrastructure and amenities offered by the charging station, making the action a provision of service.
According to the AAR, “supply of electrical energy” and “service charges” should be regarded as “supply of service” together. Therefore, SAC 998714 covers the activity of charging EV batteries, which is considered a supply of a service and is subject to GST at 18%. It was also stated that the applicant’s input tax credit earned for its inputs and input services might be offset against the GST collected, which is considered an output tax.
Although treating EV charging as a taxable service will give the industry the option to claim input tax credit, Harpreet Singh, Partner, Indirect Tax, KPMG, said that the wider impact on the EV ecosystem, which includes EV users, is to be viewed with a critical lens. “An active engagement with stakeholders, industry experts, and tax professionals is required in order to facilitate a collaborative effort to arrive at a suitable GST framework for EV charging stations,” according to the government. “This will help to provide an impetus to the growth of the EV ecosystem and to foster the government’s green initiatives.”