With the ever-increasing fuel costs which are surging all-time high, automobile manufacturers as well as people are shifting towards electric vehicles. The market for the electric vehicle is in great demand and will soon become the next big thing once it is fully tapped. The electric vehicle with its environment friendly attributes is slowly and gradually changing the landscape of automobile sector.
In order to promote electric vehicles in the country, the Government has proposed some initiatives, incentives and exemptions so as to ease the manufacturing process and bring down the cost of manufacturing electric vehicle. On the GST front, the GST rate of electric vehicles was reduced from 12% to 5% w.e.f. 1-8-2019.
2. Allowance of Sale of Electric two/three wheelers without battery
The main and important component of electric vehicle is ‘battery’ without which such vehicles cannot run and operate. However, batteries were proving to be quite expensive thereby increasing the overall cost of electric vehicle. To de-link the cost of battery from the vehicle, the Ministry of Road Transport and Highways (MoRTH) vide its Press Release dated 12-08-2020 allowed the registration and sale of electrical two wheelers and three-wheeler in the market without pre-fitted batteries. Further, the press release stated that the battery could be provided separately by the OEM or the energy service provider.
3. Taxability of electric vehicles under GST
Electrically operated vehicles, including two and three wheeled electric vehicles.
Explanation—For the purposes of this entry, “Electrically operated vehicles” means vehicles which are run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicles and shall include E- bicycles.
4. Contrary Advance Rulings
Ever since the Govt. allowed the sale of electric two/three wheelers without battery, there has been a lot of confusion that whether such vehicles without battery would still be classified as electrically operated vehicles and whether those can be taxed at the rate of 5% GST.
This issue was taken up by the West Bengal AAR as well as Odisha AAR but both the AARs’ pronounced contrary rulings as stated below:
According to the Notification No. 1/2017-Central Tax (Rate), electric vehicle means vehicles which are either run on energy obtained from external source or where one or more electrical batteries are fitted to such road vehicles.
This fact cannot be denied that battery pack plays a crucial role in the operation of electric vehicle. Notably, battery pack can be installed afterwards, and thereafter, electric vehicle can be put to use and become operational.
As mentioned above, there are contrary advance rulings on this issue, WB AAR holds that electric vehicle without battery is nothing but chassis with engine and cannot be classified as electric vehicle whereas Odisha AAR holds that electric vehicle either with or without battery pack would still qualify as ‘electrically operated vehicle’ under GST.
The automobile industry performance in terms of sales revenue has not been impressive in the past few years. The intention of the Government to reduce the GST rate of electric vehicles was to boost this emerging sector and that is why no differentiation or threshold was placed with respect to cost of electric vehicles and the reduced rate of 5% is applicable on all the electric vehicles.
However, there is no clarification on whether the electric vehicle without battery would still be classified as ‘electric vehicle’ or not for the purpose of taxability at 5% GST.
6. Concluding Remarks
In the absence of any clear-cut clarification from the Govt., some dealers and manufacturers are taking a safe measure by charging 28% GST. If the dealers and manufacturers opt for 5% GST on the electric vehicles sold without battery, then the litigation may arise in future. Thus, there is a dire need from the Govt. to clear the dust regarding the taxability of electric vehicles sold without battery under GST as early as possible to avoid further disputes and litigations on the same.