A three-wheeler motor vehicle will be considered an electrically operated vehicle if it is fitted with the battery packs, an Authority for Advance Rulings (AAR) has ruled.

“A three-wheeled motor vehicle is classifiable under HSN 8703 as an electrically operated vehicle, provided it is fitted with the battery pack. Otherwise, it will be classifiable under HSN 8706,” the West Bengal AAR said in a recent ruling. HSN (Harmonised System of Nomenclature) 8703 classifies such vehicle for ‘nil’ levy, while HSN 8706 means GST at 28 per cent.

Commenting on the ruling, Rajat Mohan, Senior Partner with AMRG & Associates, said that under the renewable energy initiative of the Government of India, electrically operated three-wheeled motor vehicles are chargeable to nil rate of duties. The AAR ruling held that an electrically-operated three-wheeled motor vehicle would fall under the highest tax bracket of 28 per cent if it is not fitted with a battery pack.

“E-rickshaw and e-auto manufacturing companies would be saddled with ineligible ITC, as the shells would be chargeable at 28 per cent GST, whereas there would no tax on outward supplies if the shell is fitted with batteries,” said Mohan.

Vehicle classification

The applicant in the case, Hooghly Motors Private Limited, is a manufacturer of “three-wheeled motor vehicles”, commonly known as ‘Toto’. It had approached the AAR to know whether a three-wheeled vehicle is classifiable as an ‘electrically-operated motor vehicle’ under HSN 8703 when supplied with a battery pack. It submitted that such a vehicle is different from the body of a three-wheeled motor vehicle supplied without the battery pack. The latter may be classified under another code — HSN 8708 — which attacts 28 per cent GST.

After going through facts presented, the AAR observed that a three-wheeled motor vehicle without the battery pack does not have the essential character of an electrically-operated vehicle. However, it is also not a vehicle fitted with an internal combustion engine. Unless it is equipped with any device like solar panels that may supply energy for its locomotion, it cannot be classified as a vehicle under Sub-heading 8703 of the Tariff Act.

However, it includes the chassis fitted with the motor to convert electrical energy into mechanical energy, to put the vehicle into locomotion once the battery pack is attached. Such a device is called the engine of the vehicle. “It is, therefore, classifiable under Tariff head 8706 00 31, being the chassis fitted with an engine of a vehicle under sub-heading 8703,” the Bench said.

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