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GST is chargeable on Battery Charging Fee of EVs as it is not a Supply of Electricity but a Service

Recently Karnataka Advance Ruling has held that GST is chargeable on amount recovered from EV owners as it is a Supply of Service and not Supply of Electricity which is exempt as per S.No. 104 of Notification 2/2017-CT(Rate) as amended. (Copy of Order is attached at the end of the Article)


In this article, we will discuss following aspects of the Ruling

  • Brief Facts of the Case

  • Query Raised by the Taxpayer

  • Submissions of the Taxpayer

  • Discussion about Legal Provisions by the Authority

  • Decision of the Authority


Brief Facts of the Case


M/s. Chamundeswari Electricity Supply Corporation Ltd is engaged in sale of energy and transmission and distribution of electricity; sale of energy is exempt as per serial number 104 of Notification No.2/2017-Central Tax (Rate), dated 28-06-2017 and also transmission and distribution of electricity is exempt as per serial number 25 of Notification No.12/2017-Cental Tax (Rate), dated 28-06­2017.


They are going to set up various public charging stations (PCS) on its own, for charging electric vehicles (EVs), both two-wheelers and four-wheelers. The charging of a battery in EVs requires electricity. The Applicant will provide electric energy to these public charging stations. All electric vehicle users can access these pubic charging stations for battery charging. The Applicant would like to issue tax invoices and collects "Electric Vehicle Charging Fee". It includes two components - (a) 'Energy Charges', and (b) 'Service Charges'. 'Energy Charge' refers to the number of units of energy consumed and the 'Service Charge' refers to the services provided by the charging station, i.e. the cost of setting up the service station and running the same.


Query of the Taxpayer


a) Whether charging of electric battery - which involves two components - is an activity of 'supply of electrical energy' (as supply of goods) and 'service charges' (as supply of service); or


b) Whether the 'supply of electrical energy' and 'service charges' - both components - to be treated as 'supply of service' as held by the Ministry of Power, vide its Clarification dated 13-04-2018; and


c) If the 'supply of electrical energy' and 'service charges' are treated as two different components, then whether the 'supply of electrical energy' is exempt v,as per serial number 104 of Notification No.2/2017-Central Tax (Rate), dated 28-06-2017 (HSN 2716 00 00) and 'service charges' is taxable as per Notification No.11/2017-Central Tax (Rate), dated 28-06-2017;

d) If both the components are treated as 'supply of service', then the Service Accounting Code and the rate of tax applicable under the GST and the relevant notification, may please be clarified;


e) Whether the GST collected, which is treated as output tax, can be set-off against the input paid by the Corporation on its inputs and input services, as provided under Rule 42 and 43 of the GST Rules.


Key Submissions of the Taxpayer


Ministry of Power has clarified that it is not a Sale of Electricity but Supply of Service in its Clarification dated 13-04-2018 that:


"3. The charging of battery essentially involves utilization of electrical energy for its conversion to chemical energy, which gets 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 from the owner of the vehicle. The activity does not in any way include sale of electricity to any person as the 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 of transmission of electricity".


4. Therefore, it is clarified that during the activity of charging of battery for use in electric vehicle, the charging station does not perform any of the activities namely transmission, distribution or trading of electricity, which require license under the provisions of the Act, hence the charging of batteries of electric vehicles through charging station does not require any license under the provisions of the Electricity Act, 2003". (Emphasis supplied).



The Applicant is of the opinion that the clarification of the Ministry of Power, vide its Clarification dated 13-04-2018, is with regard to obtaining license to operate the charging station. While clarifying so, it states that the charging stations do not require license under the Electricity Act, 2003, since charging stations do not perform any of the activities, namely, transmission, distribution and trading of electricity.



Discussion about Legal Provisions by the Authority (Based on our interpretation)


The activity of electric vehicle charging involves charging of a battery i.e, conversion of electric energy to chemical energy in the premises of the applicant's Public Charging Stations (PCS). Electricity which is a 'moveable' property and classified as goods, is not supplied as such to the consumer, rather it is converted into chemical energy. Recipient or the consumer does not receive electricity as such as in the case with any other supply of goods or moveable property. Consumer receives only chemical energy stored in the battery. It is a case of putting to use electrical energy at the PCS for its conversion into chemical energy. The applicant also measures the 'Energy Charges' in the number of units of energy consumed for undertaking the said activity of charging of battery and not the amount of electricity transmitted to the consumer for his further application or usage. Thus we find that the activity of charging of electric vehicle does not amount to supply of electricity or supply of any moveable property, but it is a supply of service.


Further as per Electricity Act, "supply", in relation to electricity, to mean the sale of electricity to a licensee or consumer and Section 2(15) of the said Act defines "consumer" to mean any person who is supplied with electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a licensee, the Government or such other person, as the case may be.


In the instant case, it is admitted that the Public Charging Stations (PCS) proposed by the applicant do not have licence as required under the Act, 2003 and the consumer lacks any premises for transmission through a service line or otherwise. The consumer is also not supplied with electricity, rather gets his electric vehicle battery charged using the electricity. Thus even in terms of the Electricity Act, 2003 the activity does not amount to supply of electricity.


Thus the applicant's activity of charging of battery does not involve sale of electricity to any person as the electricity is consumed by the charging station and thus the electrical energy is put to use as a consumable, for charging of battery. In other words the owner of the Electric Vehicle is being allowed to use the infrastructure /facilities that are provided by the charging station and therefore the said activity amounts to supply of service, for which the applicant admittedly collects Electric Vehicle Charging Fee as consideration. Thus the impugned activity amounts to supply of service in terms of Section 7(1)(a) read with Section 2(102) of the CGST Act 2017.


RULING


a) The charging of electric battery is an activity amounting to supply service, i.e., Battery Charging Service' for motors.


b) The 'supply of electrical energy' and 'service charges' together are to be treated as 'supply of service'.


c) The 'supply of electrical energy' and 'service charges' are not treated as two different components and thus the entry number 104 of Notification No.2/2017-Central Tax (Rate), dated 28-06-2017 and Notification No.11/ 2017-Central Tax (Rate), dated 28-06-2017 are not applicable to the instant case.


d) The activity of the applicant i.e. charging battery of Electrical Vehicle is treated as 'supply of service' that gets covered under SAC 998714 and attracts GST @18% in terms of entry No.25(ii) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, as amended.


(SAC 998714 is related to Maintenance and repair of transport machinery and equipment, which includes electrical system repair and battery charging services for motor cars.)


e) GST Collected as output Tax can set off against ITC received by the applicant on its inputs and input services in terms of Section 16 & 17 of CGST Act, 2017 read with Rule 42 and 43 of the CGST Rules, 2017.



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Copy of the Order

Karnataka state AAR no. 24-2023 of Chamundeswari_Electricity_Supply
.pdf
Download PDF • 5.24MB


Disclaimer: We did interpretation of Respected Authority Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the Authority.





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