2023 (7) TMI 869 - AAR - GST

Electric vehicle charging constitutes supply of service, not goods, attracting 18% GST under SAC 998714

AAR Karnataka held that electric vehicle charging constitutes supply of service, not goods. The activity involves converting electrical energy to chemical ... Supply of service - supply of goods - conversion of electrical energy into chemical energy - Battery Charging Service (SAC 998714) - exemption notification inapplicable to EV charging - classification of services for GST - input tax credit / set-off under Sections 16 & 17 read with Rules 42 and 43 - licence requirement under the Electricity Act, 2003Supply of service - supply of goods - conversion of electrical energy into chemical energy - Whether charging of an electric vehicle battery by a public charging station amounts to supply of goods (electrical energy) or supply of service. - HELD THAT: - The Authority found that charging an EV battery at a public charging station entails the consumption and conversion of electrical energy into chemical energy stored in the battery on the premises of the station. The consumer does not receive electrical energy as a movable good for further use; instead the energy is put to use by the station to charge the battery. The activity therefore is not a supply of electricity as goods but a supply of service. The conclusion is supported by the nature of the transaction (use/consumption of electricity by the charging station) and the character of consideration collected as an EV charging fee. [Paras 11]Charging of an electric vehicle battery by a public charging station is a supply of service.Licence requirement under the Electricity Act, 2003 - supply of electricity - Whether, having regard to the Electricity Act, 2003 and the Ministry of Power clarification, the activity constitutes supply of electricity requiring licence. - HELD THAT: - Reference to definitions and provisions of the Electricity Act, 2003 shows that 'supply' in relation to electricity presupposes sale to a consumer and ordinarily requires licence for transmission, distribution or trading. The public charging stations envisaged by the applicant do not involve supplying electricity to the consumer's premises nor do they perform transmission, distribution or trading; the Ministry of Power clarification also records that charging stations do not require licence. On these grounds the Authority held that the activity does not amount to supply of electricity under the Electricity Act, 2003 and therefore does not attract the regulatory/licence regime applicable to supply of electricity. [Paras 12, 14]The activity does not amount to supply of electricity under the Electricity Act, 2003 and does not require a licence; it is a service activity.Exemption notification inapplicable to EV charging - classification of services for GST - Whether the energy component of EV charging qualifies for exemption under the entry for supply of electrical energy and whether the energy and service components must be treated as distinct taxable supplies. - HELD THAT: - Because the activity of EV battery charging is a supply of service (and not a supply of electricity as goods), the entries granting exemption to supply of electrical energy and to transmission/distribution are not attracted. The Authority concluded that the 'energy charges' and 'service charges' cannot be treated as two separate components such that the energy component alone would qualify for the exemption notified for supply of electrical energy. [Paras 15]The exemption entries for supply of electrical energy and related notifications do not apply; the energy and service components are not to be treated as separate supplies for the purpose of claiming the electricity exemption.Battery Charging Service (SAC 998714) - classification of services for GST - rate of tax - Classification of EV battery charging service under GST and the applicable rate of tax. - HELD THAT: - Having determined that EV charging is a service, the Authority referred to the Explanatory Notes to the Scheme of Classification of Services and placed battery charging for motor vehicles within SAC 998714 (maintenance/repair/charging of transport machinery and equipment). Entry No. 25(ii) of Notification No. 11/2017-Central Tax (Rate), as amended, prescribes an 18% GST rate for the relevant service. Accordingly, the activity falls under SAC 998714 and attracts GST at 18% (CGST 9% and KGST 9%). [Paras 16, 17]EV battery charging is classifiable under SAC 998714 and attracts GST at 18% in terms of the relevant notification.Input tax credit / set-off under Sections 16 & 17 - Rules 42 and 43 - Whether the GST collected as output tax on EV charging can be set off against input tax credit on inputs and input services. - HELD THAT: - The Authority found the question to be framed generally and accordingly stated that the applicant may avail input tax credit and utilize it in accordance with Sections 16 and 17 of the CGST Act, 2017 read with Rules 42 and 43 of the CGST Rules, 2017. No specific disallowance or special restriction was imposed; entitlement to credit is to be determined as per the statutory provisions and rules. [Paras 18]Output GST collected on EV charging may be set off against input tax credit in accordance with Sections 16 & 17 and Rules 42 and 43.Final Conclusion: The Authority ruled that charging of electric vehicle batteries at public charging stations is a supply of service (Battery Charging Service) and not a supply of electrical energy as goods; the energy and service components are to be treated together as a service, classifiable under SAC 998714 and taxable at 18%; the notifications granting exemption for supply of electrical energy do not apply; and input tax credit may be availed and set off subject to Sections 16 & 17 and Rules 42 and 43 of the GST framework. Issues Involved:1. Classification of the activity of charging electric batteries.2. Treatment of 'supply of electrical energy' and 'service charges'.3. Applicability of tax exemptions and rates.4. Determination of Service Accounting Code (SAC) and tax rate.5. Set-off of GST collected against input tax credit.Summary:1. Classification of the Activity of Charging Electric Batteries:The core issue is whether the activity of charging electric vehicle (EV) batteries amounts to the supply of goods or services. The judgment concludes that charging an EV battery involves converting electrical energy to chemical energy, which is a service, not a supply of electricity. Therefore, the activity is classified as a 'supply of service.'2. Treatment of 'Supply of Electrical Energy' and 'Service Charges':The judgment holds that the 'supply of electrical energy' and 'service charges' together should be treated as a 'supply of service.' This is based on the Ministry of Power's clarification that the activity does not involve the sale of electricity but is a service requiring the consumption of electricity by the charging station.3. Applicability of Tax Exemptions and Rates:Since the activity is considered a supply of service, the exemptions under Notification No. 2/2017-Central Tax (Rate) and Notification No. 12/2017-Central Tax (Rate) do not apply. The service is classified under SAC 998714, which covers maintenance and repair services of transport machinery and equipment, including battery charging services for motor cars. The applicable GST rate is 18%.4. Determination of Service Accounting Code (SAC) and Tax Rate:The activity of charging EV batteries is classified under SAC 998714, which pertains to maintenance and repair services of transport machinery and equipment. The applicable GST rate for this service is 18%, as per entry No. 25(ii) of Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017.5. Set-off of GST Collected Against Input Tax Credit:The judgment clarifies that the GST collected, treated as output tax, can be set off against the input tax credit received by the applicant on its inputs and input services. This is in accordance with Sections 16 and 17 of the CGST Act 2017, read with Rules 42 and 43 of the CGST Rules 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 the relevant notifications for exemptions are not applicable.d) The activity of charging the battery of an Electrical Vehicle is treated as 'supply of service' under SAC 998714, attracting GST @18%.e) The GST collected can be set-off against the input tax credit received by the applicant on its inputs and input services, as per the relevant sections and rules of the CGST Act and Rules.