2023 (7) TMI 869 - AAR - GST

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

In Re: M/s. Chamundeswari Elecricity Supply Corporation Limited,

AAR Karnataka held that electric vehicle charging constitutes supply of service, not goods. The activity involves converting electrical energy to chemical ... Classification of supply - Scope of supply - supply of goods or supply of service - charging of battery - activity of supply of electrical energy - service charges (as supply of service) - two different components or not - applicability of N/N. 2/2017-Central Tax (Rate), dated 28-06-2017 and N/N. 11/2017-Central Tax (Rate), dated 28-06-2017 - Input tax credit of GST paid. Whether their activity of electric vehicle charging amounts to supply of goods or services? - HELD THAT:- 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 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. 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 - 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(l)(a) read with Section 2(102) of the CGST Act 2017. The activity does not involve further distribution or transmission of electricity. Therefore, 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 licence under the provisions of the Electricity Act 2003 and hence the charging of batteries of electric vehicles through charging station does not require licence under the provisions of the Electricity Act 2003 - the charging stations do not require a licence for charging the battery of an EV and thus the said stations are not involved in transmission, distribution or trading of electricity. Therefore, even on this count also the impugned activity amounts to supply of service. As the activity of charging battery of electrical vehicle is considered as supply of service, the applicability of Notifications 2/2017-Central Tax (Rate) and 12/2017-Central Tax (Rate) both dated 28.06.2017 does not arise to the instant case. Classification of the impugned activity of the applicant i.e. charging battery of Electrical Vehicle - HELD THAT:- It is observed from the Explanatory Notes to the Scheme of Classification of Services, which is adopted for the purposes of GST, that SAC 9987 covers Maintenance, repair and installation (except construction) services; SAC 99871 covers Maintenance and repair services of fabricated metal products, machinery and equipment and SAC 998714 covers Maintenance and repair of transport machinery and equipment, which includes electrical system repair and battery charging services for motor cars. The Electrical Vehicle contains a motor to rotate the wheels that functions out of the energy sourced through the battery and thus the said vehicle qualifies to be a motor car. Thus charging the batteries of such electric vehicles amounts to charging of the batteries of motor cars and thus the impugned activity squarely gets covered under SAC 998714. Further Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, prescribes GST rate of 18% (CGST-9% and KGST-9%) vide entry number 25(ii) for the impugned activity/service. Whether the output tax can be set off against the input paid on inputs and input services, as provided under Rule 42 and 43 of the GST Rules? - HELD THAT:- It is observed that the question is not specific and as such the applicant can avail input tax credit and utilize the same in terms of Sections 16 & 17 of the CGST Act 2017 read with Rules 42 and 43 of the CGST Rules 2017. 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.