In the 56th GST Council meeting, it was concluded that Original Equipment Manufacturers (OEMs) will be eligible to claim refunds of unutilised Input Tax Credit (ITC) arising due to the Inverted Duty Structure (IDS).
With the recent rate rationalisation, several OEM sectors are now facing situations where the GST paid on inputs is higher than the GST levied on output supplies. This leads to accumulation of ITC in their electronic credit ledger.
Since this accumulated ITC cannot be fully utilised against output tax liability, OEMs will need to depend on refund claims under IDS to unlock their working capital and maintain cash flow.
In the context of electric vehicles (EVs), an OEM (Original Equipment Manufacturer) refers to a company that designs, manufactures, and assembles complete EV units or components for other brands. These partnerships allow newer brands to launch EV products without the massive capital investment of setting up their own factories, enabling faster market entry and scalability. OEMs can also play a crucial role in developing smart energy management systems for EVs, such as vehicle-to-grid (V2G) technology and renewable energy integration.
How OEMs operate in the EV sector:
- Manufacturing services:
OEMs build electric vehicles and components on behalf of other companies or brands.
- Focus on specialization:
Brands partner with OEMs to leverage their expertise in areas like battery integration, software development, and EV architectures.
- Brand differentiation:
Brands can then focus on marketing, distribution, customer engagement, and customization, while the OEM handles the technical quality and production.
Examples of OEM roles:
- Component suppliers:
Some OEMs focus on manufacturing specific EV components like batteries or specialized modules for drivetrains.
- Complete vehicle manufacturers:
Other OEMs design and produce entire electric vehicles, including scooters, three-wheelers, and potentially cars.
- Technology developers:
OEMs are also instrumental in developing advanced technologies for EVs, such as intelligent energy management systems, efficient charging solutions, and data-driven insights.
Why OEMs are important for the EV market:
- Market growth and speed:
The rapid growth of the EV market demands quick product launches, and OEMs provide a path for companies to achieve this efficiently.
- Access to expertise:
For new or emerging brands, partnering with an established OEM grants access to technical know-how, engineering, and compliance knowledge.
- Innovation:
OEMs can drive innovation by investing in automated manufacturing processes and collaborating with startups and global EV firms for co-development.
Conclusion
For OEMs, IDS refunds remain a critical part of cash flow management under GST. While the government is taking steps to rationalise rates and reduce IDS cases, certain industries will continue to face refund dependency. By strengthening compliance, proactively filing refund claims, and preparing for provisional refund mechanisms, OEMs can safeguard liquidity and ensure smoother operations under GST.
*****
The author can be reached at venkateshm33@gmail.com for any queries or further clarifications.
Author Bio
