GST treatment of Battery Energy Storage Systems: Energy storage classified as support services, taxable at 18%

Background and context

The Authority for Advance Ruling, Tamil Nadu examined the GST implications on a business model involving development and operation of Battery Energy Storage Systems (BESS) under long-term contracts with electricity utilities. The ruling in the case of Indigrid 2 Private Limited clarifies whether such BESS activities can be treated as:

  • Supply of electrical energy (goods) exempt under Notification No. 02/2017-CT (Rate) dated 28-06-2017, or
  • Transmission or distribution of electricity (services) falling under Sl. No. 25 of Notification No. 12/2017-CT (Rate) dated 28-06-2017, chargeable at NIL rate.

The Authority ultimately held that the activities of the BESS operator amount to “support services to electricity transmission and distribution” classifiable under HSN 998631 and taxable at 18% GST, and that GST registration is mandatory in the State where the BESS facility is set up.

This ruling is particularly significant for entities planning grid-scale storage projects in India, whether as standalone storage providers or in co-located configurations with generating, transmission, or distribution utilities.

Business model and activities of the applicant

Nature of operations

The assessee, INDIGRID 2 PRIVATE LIMITED, is engaged in the business of:

  • Designing, developing, installing and operating BESS projects for various transmission, distribution and trading entities across India;
  • Entering into long-term Battery Energy Storage Purchase Agreements (BESPA) with utilities; and
  • Providing an energy storage facility that draws power from the grid, stores it in electro-chemical batteries, and re-injects it into the grid when called upon by the contracting utility.

Although the assessee is registered under GST in multiple States, it was not registered in Tamil Nadu at the time of the ruling and had not yet commenced operations there. For the ruling, it submitted a sample BESPA and sample invoices pertaining to an existing BESS facility in another State.

Key contractual features under BESPA

Under a typical BESPA, the assessee’s obligations include:

  • Establishing and commissioning BESS at multiple specified locations;
  • Keeping the BESS continuously available for charging (from the grid) and discharging (to the grid) on an on-demand basis;
  • Operating and maintaining the BESS during the entire contract term;
  • Constructing and maintaining a dedicated transmission network up to the delivery point at its own cost, as per utility requirements;
  • Obtaining all approvals, permits and clearances required for:
    • Installation of BESS; and
    • Laying of dedicated transmission lines up to the delivery point.

For these services, the assessee charges a fixed, capacity-based monthly tariff, determined in the BESPA.