GST on Battery Energy Storage Systems (BESS): AAR Rules 18% Tax, No Electricity Exemption

Indigrid 2 Private Limited (applicant) has filed an application in Form GST ARA-01 seeking Authority for Advance Ruling (AAR), Goods and Services Tax (GST), Tamil Nadu. The applicant is located at 10th Floor, Berger Tower, C-001/A2, Sector-16B, Gautam Buddha Nagar, Noida, Uttar Pradesh 201301.

The applicant is involved in the business of developing and operating Battery Energy Storage Systems (BESS) for or on behalf of various transmission, distribution, and trading agencies in India. The applicant signs a Battery Energy Storage Purchase Agreement (BESPA) with several transmission and distribution companies for the development and establishment of BESS in specified areas for the purpose of storing and discharging electricity. The applicant has GST registration for several states in India; however, not for Tamil Nadu at present.

Questions Asked by AAR Tamil Nadu:

The following are the questions asked by the applicant, seeking the AAR Tamil Nadu:

“Question 1: Whether the activity of development and operation of BESS, when such BESS is put on a standalone basis, i.e., not with generation, transmission, and distribution utility, would amount to supply of electrical energy and consequently be exempt from payment of GST in terms of Notification No. 02/2017-CT(Rate) dated June 28, 2017.

Question 2: Would the activity of development and operation of BESS when such BESS is co-located (i.e., put up with generation, transmission, and distribution utilities) amount to supply of electricity and consequently be exempt from payment of GST in terms of Sl. No. Notification No. 02/2017-CT(Rate) dated June 28, 2017, or be exigible to nil rate of duty in terms of Sl. No. 25 of Notification No. 12/2017-CT(Rate) dated June 28, 2017?

Question 3: In the event the authority is of the considered view that the exemption shall not be available to the BESS projects, whether standalone or colocated, then what will be the applicable rate of GST? Consequently, is the applicant required to obtain registration in the state of Tamil Nadu? “

Answers Given by AAR Tamil Nadu:

The following is the advance ruling given by the AAR Tamil Nadu under Section 98(4) of the CGST Act, 2017, and under Section 98(4) of the TNGST Act, 2017:

Answer 1: No, the activity of development and operation of BESS when such BESS is put on a standalone basis, i.e., not with generation, transmission, and distribution utilities, would not amount to supply of electrical energy, and therefore, GST will not be exempted on the same under Notification No. 02/2017-CT(Rate) dated 28-06-2017.

Answer 2: The same function is performed by both the standalone and co-located BESS, but their ownership is different. Since the development and operation of both standalone and co-located BESS units are not considered as a part of generation/transmission/distribution utility, the applicant is not eligible for exemptions under both Notification No. 02/2017-CT(Rate) dated June 28, 2017, and Notification No. 12/2017-CT(Rate) dated June 28, 2017.

Answer 3: The activities performed by the applicant under its business correctly fall under the category of “support services to electricity transmission and distribution” under the HSN code 998631, and hence are liable for GST imposition at 18%. For the same, the applicant is required to take GST registration in the state of Tamil Nadu.