GST ON 2/3 WHEELED ELECTRIC VEHICLES

[Dr. Sanjiv Agarwal]

There is a growing trend in manufacture and demand for electric driven vehicles of all types, especially 2 wheeled 3 wheeled and motor cars. What happens to levy of GST on such electric vehicles ? What rate they would be taxed ? will the GST rate be different if these were supplied with or without vehicles ? All such concerns were raised and answered in one of the recent advance rulings dated 15.04.2021 by Authority for Advance Rulings, Odisha.

In the Instant case, i.e., IN RE: M/S. ANJALI ENTERPRISES [2021 (8) TMI 250 - AUTHORITY FOR ADVANCE RULING, ODISHA], it has been ruled that GST @ 5% shall be payable on two or three wheeled ‘battery powered electric vehicle’ supplied with or without a battery pack.

On facts, the applicant was dealing in battery powered electric two wheelers, as a dealer. The applicant purchased vehicles under a brand name ‘EEVE’. During transportation, the batteries were not fitted with the vehicle though they were transported together. The applicant proposed to manufacture similar battery powered electric vehicle and wanted clarification whether fitting of battery is mandatory in battery powered electric vehicles while selling the same to the dealers for getting the benefit of 5% GST rate applicable for electrically operated vehicles.

It sought advance ruling on the following query :

“Whether fitting of battery is mandatory in two & three-wheeled battery powered electric vehicles (here-in-after referred to as ‘the subject goods’) while selling the same to the dealers for getting the benefit of 5% GST rate applicable for electrically operated vehicles?”

It was submitted that  electrically operated vehicles, including two and three wheeled electric vehicles falling under Chapter 87 is taxable @ 5%. As per S.No. 242A of Notification No. 1/2017-Central Tax (Rate) dated 30 June 2017, as amended which defines electrically operated vehicles as “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”.

The subject goods in question are operated from the power generated by battery, supplied to the motor to rotate the wheels and also the vehicle in question does not have an internal combustion engine or gear box, etc. which is typical in the case of a fossil fuel powered vehicle. Hence, it falls within the definition of electrically operated vehicle, as defined above, chargeable to GST @ 5%.

The only difference between the goods that are supplied with batteries and the ones without batteries is that, battery is not there in the latter case. Otherwise, the goods without batteries are complete in itself to act as an agent of transportation which is propelled by a motor. Once battery is fitted, the vehicles will start functioning. Thus, such goods fits within the definition of ‘Electrically operated vehicles’ mentioned in entry 242A of Notification No. 1/2017.

It further submitted that for a vehicle to be construed as a battery operated vehicle, the same must be powered exclusively by electric motor wherein the traction energy is supplied exclusively by traction battery installed in the vehicle. However, fitting of batteries cannot be considered as a concomitant factor to define a vehicle as a battery powered/ battery operated vehicle.

The Department contended that even without the battery, if the e-rickshaw has a motor fitted on a chassis along with the body and is capable of transporting people, it remains its original character. The chassis of an e-rickshaw is the basic skeletal or structural framework fitted with an axle, motor and other parts. Just because there is no battery, it may not be termed as ‘chassis’, as there is a body mounted on the chassis, which gives it the characteristic of a vehicle along with the chassis. Therefore, mere absence of the battery may not make an e-rickshaw a chassis.

The AAR analyzed the definite of ‘electrically operated vehicles’.  The AAR noted that the term ‘electrically operated vehicle’ to mean ” vehicles which 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”. That means it is a type of electric vehicle (EV) that exclusively uses chemical energy stored in rechargeable battery packs, with no secondary source of propulsion (e.g. hydrogen fuel cell, internal combustion engine, etc.). An Electric Vehicle with a battery pack uses electric motors and motor controllers instead of internal combustion engines (ICEs) for propulsion.

It derives all power from battery packs and thus has no internal combustion engine etc. Electrically operated vehicles are designed to run only on electrical energy. As such, they will run on battery as and when put to use. Hence, for vehicles to be classified as electrically operated vehicles, it must be such that it would run solely on electrically energy derived from one or more electrical batteries, as and when put to use.

The AAR relied upon the case of IN RE: REVA ELECTRIC CAR COMPANY PVT. LTD. [2012 (5) TMI 380 - GOVERNMENT OF INDIA, MINISTRY OF FINANCE] which held that if electrically battery operated cars exported, though not fitted with batteries at the time of export, the same is still classifiable ‘battery powered road vehicles’ and would run on battery when put to use. Hence, we hold that fitting of battery in the vehicle, at or before the time of supply, is not a precondition for the same to be classified as electrically operated vehicle.

It was therefore, ruled that a two or three-wheeled “battery powered electric vehicle” when supplied with or without battery pack is classifiable under HSN 8703 as an ‘electrically operated vehicle’ and is taxable @ 5% GST.