Whether the charging of battery is an activity of supply of electricity 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%?
India is among a handful of countries that support the global electric vehicle (‘EV’) 30@30 campaign. It is targeting to have at least 30% new vehicle sales to be electric by 2030. Having an accessible and robust network of EV charging infrastructure is a pre-requisite to achieve the said ambitious target.
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. The EV charging involves supply of direct current (DC) to the battery pack. As electricity distribution system supplies the 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.
The Ministry of Power in its clarification 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. Thus, charging stations do not require any licence under the Electricity Act.
If one adopted under GST, 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 exempted from GST.
In view of the above, the solitary question that arises, 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%.
The classification of electricity as ‘goods’ was much debated under the Electricity Duty Laws. It was held in many cases 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.
The Apex Court in these decisions 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.
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 in the facts of the impugned issue, then one can argue that the given clarification may not be 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.
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 electricity by DISCOMS. 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 the same that there is a supply of electricity.
The clarification of the 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. However, the same may not be adopted in context of GST laws.
Based on the above, the impugned activity by charging station can be well argued to be classified as the Sale of electricity under GST and thus exempted.
Further, if one takes the reference of the position adopted under the EU VAT there also the given transaction is considered as a supply of goods.
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 vehicles in charging stations is the supply of electricity as goods for the purposes of GST laws.
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.
(The article is authored by Sunil Kumar, Manager, and co-authored by Monika Singla, Assistant Manager, at Taxmann)
