Applicability of GST on electrically operated vehicles

Applicability of GST on electrically operated vehicles

Applicability of GST on electrically operated vehicles

With an aim to decrease the pollution, the Government is vastly promoting the manufacture and use of electrically operated vehicles in India. However, the Goods and Services Tax (GST) applicability on the same remains highly confusing. The present article tries to clarify the position by covering classification, GST applicability and recent advance ruling in the matter.

Classification and GST applicability of electrically operated vehicles

Since the inception of GST, the classification of the electrically operated vehicles has created a huge cry in the market. The classification is critically explained hereunder-

As per notification no. 1/2017- Central Tax (Rate) dated 28th June 2017, heading 8703 includes all the motor cars and other motor vehicles designed for the transport of person, station wagons and racing cars. However, the said heading doesn’t include a description of goods covered under heading 8702 and cars for a physically handicapped person. Notably, the goods classified under heading 8703 are taxable @28% GST (14% CGST and 14% SGST).

Moving ahead, notification no. 1/2017- Central Tax (Rate) dated 28th June 2017 has specifically covered Electrically operated vehicles (including two and three-wheeled electric motor vehicles) under heading 87. Here, the classified goods are taxable @12% GST (6% CGST and 6% SGST).

The Ministry of Finance issued a new notification no. 12/2019- Central Tax (Rate) dated 31st July 2019 (effective from 1st August 2019) dealing with electrically operated vehicles. The notification also classified the Electrically operated vehicles (including two and three-wheeled electric vehicles) under heading 87. However, shifted the Schedule and accordingly, the goods were taxable @5% GST (2.5% CGST and 2.5% SGST).

To clarify the position more, the above notification provided the definition of ‘Electrically Operated Vehicles’. The definition covers vehicles which are run only on electrical energy derived from an external source or from one/ more electrical batteries fitted to such road vehicles. The definition also covers e-bicycles.

Actually, the Ministry of Finance provided the definition of ‘Electrically Operated Vehicles’ to simplify the classification. However, the same added to the confusion. Confusion increased with regard to classification of electrically operated vehicles which are supplied with a battery pack and supplied without a battery pack. Dealing with the above confusion, M/s. Hooghly Motors Pvt. Ltd. applied for advance ruling in the matter which is explained hereunder.

Recent judicial rulings in the matter

An advance ruling in the matter of classification of electrically operated vehicles was filed by M/s. Hooghly Motors Pvt. Ltd. to the West Bengal Authority for Advance Ruling. The authority took up the application and provided the judgement in August 2020. The gist of the ruling is summarized hereunder-

  • Based on the application, the applicant desired an answer to the following two questions-
    • Whether the three-wheeled vehicle is classifiable as an ‘electrically operated vehicle’ classifiable under heading 8703 when the vehicle is supplied with a battery pack? and
    • What is the classification of an ‘electrically operated vehicle’ when supplied without a battery pack?
  • Rulings given by the West Bengal Authority for Advance Ruling-
    • An electrically operated three-wheeled vehicle is run only on electrical energy which is derived from an external source or one/ more electrical batteries fitted to the vehicle.
    • In case the battery back is withdrawn, the vehicle will no longer remain the three-wheeled electrically operated vehicle.
    • E-rickshaws or electrically operated three-wheeled vehicles are classifiable under heading 8703 90 10.
    • A three-wheeled electrically operated vehicle is classifiable under heading 8703 if it is fitted with the battery pack.
    • However, a three-wheeled electrically operated vehicle will be classified under heading 8706 if it is without the battery pack.

Summary

The classification and taxation of the electrically operated vehicle under GST is summarized hereunder-

  1. Electrically Operated Vehicle fitted with battery pack (including two-wheeled electric vehicle and three-wheeled electric vehicle)-

As per notification no. 12/2019-Central Tax (Rate) dated 31st July 2019, the same is classifiable under heading 87 and chargeable to 5% GST.

  1. A three-wheeled motor vehicle fitted with battery pack-

As per the latest judgement of West Bengal Authority for Advance Ruling, the same is classifiable under heading 8703. Accordingly, the same is chargeable to NIL GST.

  1. A three-wheeled motor vehicle without battery pack-

As per the latest judgement of West Bengal Authority for Advance Ruling, the same is classifiable under heading 8706. Accordingly, the same is chargeable to 28% GST.

  1. E-rickshaws or electrically operated three-wheeled vehicles-

As per the latest judgement of West Bengal Authority for Advance Ruling, the same is classifiable under heading 8703. Accordingly, the same is chargeable to NIL GST.

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.