Karnataka AAR reaffirms 18% GST to be charged on EV battery charging

An 18% goods and services tax (GST) may be imposed on charging batteries used in electric vehicles, the Karnataka authority for advance rulings (AAR) held on Thursday, on an appeal made to the tribunal by Mysuru-based electricity distribution company Chamundeswari Electricity Supply Corporation.

The company, which is setting up its own EV charging stations for two and four wheelers had sough clarity on whether electric battery charging services would come in the ambit of GST. This is because providing charging infrastructure involves two components, providing the electricity for charging and providing the service itself. If the first component is deemed a supply of goods, it wouldn’t incur any GST and if deemed a supply of services, it would incur a GST of 18%.

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The Ministry of Power had already held in 2018 held that since battery charging providers were not supplying electricity directly, which requires a license, they would be considered service providers instead. Based on this, the Karnataka AAR ruled that since the applicant does not have a license to supply electricity, it is providing a service to its consumers.

The only relief offered by the tribunal was that the company would be allowed to offset the tax by claiming input tax credit (ITC) on business costs, incurred through various facets like property rental and maintenance of infrastructure, for which GST is already being.

The ruling is unlikely to have a drastic effect on consumers, as most formal players were already charging customers an 18% GST based on the Ministry of Power’s ruling, experts held. However, businesses with fleet operations might be able to offset the GST, paid while end consumers might not have this option.

“Large companies which will be able to offset the GST will continue to invest in infrastructure. But smaller companies who have no other business except for charging will not be able to offset as much, raising the cost of building these systems. These are some triggers which will call for consolidation,” said EV charging company Magenta Mobility’s founder & managing director Maxon Lewis.

“This decision will bring in specific clarity on GST and by reiterating the applicability of the guidelines issued by the Power Ministry in 2018, it has once again emphasised the close relationship between the industry/ regulatory guidelines and the GST treatment," said MS Mani, Partner, Deloitte India.