Unequal Charge: GST Challenges for Battery-as-a-Service (BaaS) Providers in India

Introduction

India’s ambitious electric vehicle (EV) roadmap envisions clean, affordable, and scalable mobility. Among the most transformative components of this vision is Battery-as-a-Service (BaaS)—a model that decouples battery ownership from vehicle ownership, allowing users to swap or rent batteries instead of buying them outright. This significantly reduces the upfront cost of EVs, fosters a circular battery economy, and optimizes charging infrastructure usage.

However, India’s indirect tax regime, particularly the Goods and Services Tax (GST) structure, has created regulatory friction for BaaS. While EVs with pre-fitted batteries attract a concessional 5% GST, standalone batteries and BaaS services (battery swapping, rental, charging) are taxed at a significantly higher 18%. This disparity undercuts the cost-effectiveness of the BaaS model and threatens to derail its widespread adoption.

GST Structure: Batteries, Vehicles, and Swapping Services

1. 5% GST on EVs with Integrated Batteries: As per Circular No. 179/11/2022-GST dated 03.08.2022, based on the recommendations of the GST Council in its 47th meeting held on 28th- 29th June 2022, “electric vehicles whether or not fitted with a battery pack will attract GST rate of 5%”. This circular clarified that electrically operated vehicle is to be classified under HSN 8703 even if the battery is not fitted to such vehicle at the time of supply and thereby attract GST at the rate of 5% in terms of entry 242A of Schedule I of notification No. 1/2017-Central Tax (Rate). This move was intended to promote EV adoption across the board. 
2. 18% GST on Standalone Batteries and Services:
   In contrast:
   • Lithium-ion batteries, when sold independently (HSN 8507), are taxed at 18%.
   • Battery swapping services are classified under SAC 998714 (maintenance and repair services) and attract 18% GST.
   • Imported batteries, even for use in EV applications, attract 18% IGST unless bundled in a CKD or CBU vehicle import.
   • The outcome: if an EV is sold without a battery and the user relies on BaaS for energy access, the effective tax burden increases by 13%.

Legal Precedents and Advance Rulings

Several rulings and appellate tribunal decisions have clarified and reinforced this tax differential.

• AAR Odisha – Anjali Enterprises (2021): Held that EVs without pre-installed batteries still qualify for 5% GST as long as they are “meant to be powered solely by electric motors.” This supports modular vehicle designs.
• Karnataka AAR – Chamundeshwari Electricity Supply Co. (2023): Concluded that EV charging and battery swapping services constitute composite supply of energy services, subject to 18% GST under SAC 998714.
• CESTAT Chennai – Flextronics Technology India Pvt. Ltd. (2025): Affirmed 18% IGST on imported lithium-ion batteries used for telecom/industrial purposes. While not EV-specific, the ruling reinforces that the default tax rate for such batteries is 18%, unless bundled within EVs.
• CESTAT Delhi – Samsung India Electronics Pvt. Ltd. (2025): Held that lithium-ion batteries imported specifically for mobile phone manufacturing qualified for 12% concessional IGST, based on earlier exemption entries. However, this applies narrowly to phones, not EVs or BaaS.

These rulings underscore that batteries supplied independently or through service models remain outside the 5% GST umbrella, unless legislative reforms intervene.

Operational Impact on BaaS Companies

The tax differential significantly alters the economics of battery swapping and rental models.

• Input Cost Inflation: BaaS firms invest heavily in lithium-ion battery stocks, storage infrastructure, and swap station networks. The 18% GST on imports or domestic procurement increases upfront capex, and many firms cannot fully avail input tax credits due to the service-nature of their output.
• Pricing Pressure: With 18% GST on user subscription fees (e.g., ₹1,999–₹3,599 per month), the final cost to consumers rises steeply compared to fixed-battery EVs enjoying 5% GST. This blunts cost advantages that make BaaS attractive, particularly to fleet users, gig workers, and delivery personnel.
• Lack of FAME-II Eligibility: The FAME-II subsidy for electric vehicles is linked to battery integration. Many BaaS-based EVs (sold without batteries) fail to qualify for subsidies, creating an additional disadvantage.
• Cash Flow Burden: GST liabilities (both IGST on imports and CGST/SGST on services) are payable monthly, even when collections are uncertain. This affects working capital and deters scalability, particularly for startups and growth-stage players.

Policy Inconsistencies and the Urgent Need for Reform

• Contradictory Policy Objectives: While the Centre encourages swappable batteries (as per the 2022 Battery Swapping Policy draft), the tax regime disincentivizes it through a higher tax incidence on both the service and the underlying hardware.
• Unclear Definitions: Ambiguities remain around:
  • Whether batteries sold separately for EV use should get 5% GST.
  • How to treat lease/rental models—are they “goods” or “services”?
  • Whether battery replacement constitutes a sale or supply of energy.
  • These uncertainties increase litigation and compliance costs.
• Industry Representation: Bodies like the India Energy Storage Alliance (IESA) and Society of Manufacturers of Electric Vehicles (SMEV) have repeatedly urged the GST Council to rationalize battery GST and allow 5% across the supply chain, including for BaaS models.

Legal Options Available to BaaS Companies

Despite current barriers, BaaS companies have several legal strategies to consider:

A. Advance Ruling Mechanisms (AAR): Companies can approach State-level Advance Ruling Authorities to:

• Seek confirmation that batteries used solely in EVs attract 5% GST.
• Establish the classification of battery swap services as bundled EV energy supply.

Pros:

• Offers clarity for internal operations.
• Reduces future litigation risk.

Cons:

• Binding only on the applicant.
• Risk of adverse ruling (as seen in Karnataka AAR).

B. Writ Petitions before High Courts: If the GST Council delays action, companies may file writ petitions under Article 226:

• Challenge the irrational tax classification as violative of Article 14 (equality) and Article 19(1)(g) (freedom of trade).
• Argue that the 13% tax differential discriminates against BaaS models compared to fixed battery EVs.
• Notably, courts have previously entertained writs challenging GST classifications when administrative remedies were inadequate.

C. Industry-Led Representations to the GST Council: Collective representations from multiple stakeholders (Honda Power Pack Energy, Bounce Infinity, Sun Mobility, etc.) can:

• Lobby for an amendment to Notification No. 1/2017 – Central Tax (Rate) to include battery swap services under the 5% rate.
• Propose a separate SAC code for battery-as-a-service.

D. Use of Tax Structuring Models: Some tax advisors suggest creative structuring:

• Treating battery provision as a “deemed composite supply” with the EV (i.e., the battery and vehicle together constitute a unified supply taxed at 5%).
• Structuring swaps as energy sale rather than service provision—though this approach is risky and requires backing from tax authorities.

Strategic Business Recommendations

• Subscription Bundling: EV OEMs and BaaS firms could bundle batteries with the vehicle at the point of sale, treating it as a single taxable supply at 5%, and later offer upgrades/replacements via warranty or buyback programs.
• Technology Licensing & IP Monetization: Firms can use battery management software (BMS), telematics, and predictive maintenance as service components, possibly taxed under lower slabs, to offset GST on battery swaps.
• Joint Pilots with Government: By collaborating with state discoms, transport bodies, and metro rail, BaaS firms can implement pilots on public-private partnership (PPP) models—qualifying for specific exemptions or grants.
• Litigation Readiness: Companies should maintain a compliance audit trail, including:
  • Mapping of all GST invoices
  • Input tax credit (ITC) usage
  • Correspondence with suppliers and clients regarding tax positions

This documentation is vital for future audits, disputes, or appellate tribunal proceedings.

International Comparisons and Lessons

In countries like China, Taiwan, and Israel, swappable battery models receive uniform tax treatment as integrated parts of EVs. Notably:

• Gogoro (Taiwan) faces no differential VAT on swapping.
• China’s BaaS market benefits from state subsidies that don’t distinguish based on battery ownership.
• India must adapt globally competitive tax regimes if it wants to lead in the EV infrastructure race.

Conclusion

Battery-as-a-Service offers an elegant solution to India’s EV challenges—making electric mobility more affordable, accessible, and sustainable. But under the present GST framework, the 13% differential on batteries and BaaS services versus EVs presents a severe disincentive.

While judicial forums have largely sided with revenue authorities, BaaS companies are not powerless. From AAR applications and policy representations to potential constitutional writs, a range of legal tools exists. Equally, strategic bundling and innovative structuring can mitigate tax leakage in the interim.

For India to realize the full promise of electric mobility, it must harmonize its fiscal policy with its climate and infrastructure ambitions—starting by extending the 5% GST benefit across the entire EV value chain, including batteries and BaaS.