The electric vehicle (EV) industry is poised for a big leap; as per certain reports, it can become a $150 billion industry by 2030. It is against this backdrop that the issue of applicability of the Goods and Services Tax (GST) on a key facet of the EV ecosystem — the charging infrastructure — requires an examination.

Framework under GST laws

From a GST impact analysis perspective, the first step is to understand the nature of the ‘supply’ in question. An EV charging station represents an infrastructure where a user can access charging modules/devices, connect the operating system of her vehicle with charging modules, get access to electricity for consumption in charging the vehicle, and utilise the same for running the vehicle, against a payment to be made to the EV charging station.

It is pertinent to determine whether the above activities or facilities provided by an EV charging station qualify as a supply of ‘goods’ or a supply of ‘services’ under GST. That electricity per se is ‘goods’ is a settled position, based on various Supreme Court judgments.

Further, if categorised as supply of ‘goods’, can it be said that, in essence, EV charging stations undertake ‘supply of electricity’? If yes, such supplies by the EV charging station would be exempt from the levy of GST (under a generic GST exemption on supply of electricity).

But a GST exemption need not necessarily be a good outcome — if exempt, EV charging stations would not be eligible to avail input GST credit of the GST borne on the input side expenses/costs incurred by them in setting up and maintaining the EV infrastructure; this may be a suboptimal outcome for players in this space.

On the contrary, in case activities of an EV charging station are classified as a ‘supply of services’, the same would be taxable at a GST rate of 18%, but EV charging stations should be able to take credit/set-off of the input side GST costs against such output GST. But, in this case, the ultimate cost in the hands of users/consumers may increase to an extent.

Against this backdrop, cognisance ought to be taken of the following developments:

1. Clarification issued by the Ministry of Power and its applicability in the context of GST:

In 2018, the Ministry of Power had issued a notification clarifying that insofar as EV charging stations are concerned, there is no sale of electricity.

While the aforesaid clarification was in the specific context of whether an EV charging station needs to obtain a licence under electricity regulatory laws or not, the applicability of the same rationale in the context of GST laws cannot be ruled out.

2. Recent European Union (EU) judgment in the case of P. in. W. (C-282 / 22):

The basic contours of GST laws in India are similar to the EU Value Added Tax (VAT) laws, in as much as many fundamental concepts under GST laws in India have been borrowed from/are comparable to the EU VAT law. While we haven’t come across any judgments in India, in the EU the European Court of Justice (ECJ) had recently considered the question vis-à-vis EU VAT.

The ECJ concluded the transaction is that of supply of ‘goods’, i.e. electricity, since that is the predominant feature which enables users to consume electricity to propel their vehicle and the same is a supply of ‘goods’; other facilities provided being ancillary in nature.

Given the lack of clarity in India, reference to this judgment cannot be ruled out either.

Clearly, compelling arguments exist on both sides of this debate.

Conclusion

In the absence of any clarification from the government/GST Council, the applicability of GST will be subject to interpretation and unnecessary investigations and litigation, which, in the long run, would be a bugbear in the growth of the EV sector.

Given the strategic importance and the potential of the sector, certainty of taxation is critical — in order to achieve the same, clarity regarding the GST position should be brought in at the earliest. Such clarification needs to be coupled with amnesty/regularisation of the varying tax positions that might have been adopted by EV charging infrastructure players so far.