2021 (8) TMI 250 - AAR - GST

Electric vehicles without battery packs qualify for 5% GST rate under HSN 8703 classification

In Re: M/s. Anjali Enterprises,

The AAR, Odisha ruled that two or three-wheeled electric vehicles supplied without battery packs qualify as electrically operated vehicles under HSN 8703 ... Rate of GST - supply of electrically operated vehicles without fitting of battery - Requirement of fitting of battery in two & three-wheeled battery powered electric vehicles while selling the same to the dealers - applicability of benefit of 5% GST rate applicable for electrically operated vehicles - HELD THAT:- The applicant stated that the difference between the goods that are supplied with batteries and the ones without batteries is that, battery is not there in the latter case. Otherwise, the goods without batteries are complete in itself to act as an agent of transportation which is propelled by a motor. Once battery is fitted, the vehicles will start functioning. Thus, such goods fits within the definition of ‘Electrically operated vehicles’ mentioned in entry 242A of Notification No. 1/2017 ibid. The definition of ‘electrically operated vehicle’. Explanation to Entry No.242 A of schedule-1 to notification no.01/2017-central tax (rate), dated 28.06.2017, as amended from time to time defines the term ‘electrically operated vehicle’ to mean “vehicles which run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicles and shall include e-bicycles”. That means it is a type of electric vehicle (EV) that exclusively uses chemical energy stored in rechargeable battery packs, with no secondary source of propulsion (e.g. hydrogen fuel cell, internal combustion engine, etc.). An Electric Vehicle with battery pack uses electric motors and motor controllers instead of internal combustion engines (ICEs) for propulsion. It derives all power from battery packs and thus has no internal combustion engine etc. - thus, fitting of battery in the vehicle, at or before the time of supply, is not a precondition for the same to be classified as electrically operated vehicle. A two or three-wheeled “battery powered electric vehicle” when supplied with or without battery pack is classifiable under HSN 8703 as an ‘electrically operated vehicle’ and is taxable @ 5% GST. Issues:Interpretation of GST rate on electrically operated vehicles without fitted batteries.Analysis:The Applicant sought an advance ruling on whether fitting batteries in two and three-wheeled battery-powered electric vehicles is mandatory to avail the 5% GST rate for electrically operated vehicles. The Applicant argued that vehicles without batteries are complete to function as transportation agents and fall under the definition of electrically operated vehicles. They cited a judgment stating that fitting batteries is not a prerequisite for classification. The Central Jurisdictional Officer referenced a case where a vehicle without a battery pack was not considered an electrically operated vehicle. The definition of electrically operated vehicles was examined, emphasizing the use of electrical energy derived from batteries for propulsion. The ruling concluded that fitting batteries is not mandatory for classification as an electrically operated vehicle, confirming that such vehicles, with or without batteries, are taxable at 5% GST rate.The ruling was based on the interpretation of the definition of electrically operated vehicles and the applicability of the GST rate on such vehicles without fitted batteries. The Applicant's arguments, supported by relevant judgments, highlighted that the presence of batteries is not a determining factor for classification. The ruling clarified that electrically operated vehicles solely reliant on electrical energy from batteries, regardless of pre-fitted batteries, qualify for the 5% GST rate. The ruling emphasized that vehicles running on battery power, even if not initially fitted with batteries, are classified as electrically operated vehicles and subject to the specified GST rate.The ruling acknowledged the arguments presented by the Applicant and the Central Jurisdictional Officer regarding the classification of electrically operated vehicles without fitted batteries. The decision was based on the definition of electrically operated vehicles and the requirement for propulsion solely from electrical energy stored in batteries. It was established that the presence of batteries, whether fitted before or after sale, does not alter the classification of electrically operated vehicles. The ruling provided clarity on the GST rate applicability for such vehicles, ensuring consistent taxation treatment for electrically operated vehicles with or without fitted batteries.