LKS UPDATE

20 MA RC H 2 0 24

An e-update to clients from Lakshmikumaran & Sridharan

COR PO R AT E L AW

Ministry of Heavy
Industries releases Schemes
for Electric Vehicles
UP DAT E N O. 0 6 OF 2024

exceeding expectations
SINCE 1985
The Government of India has recently announced
two EV policies for the automobile sector: (i) a
demand incentive scheme for 2-wheeler and
3-wheeler electric vehicles; and (ii) a scheme for
4-wheeler electric passenger vehicles reducing the
custom duty applicable on import of passenger
vehicles into India. These policies come in the
backdrop of FAME I & II launched by the
Government of India to promote electric and hybrid
vehicles from 01 April 2019 to 31 March 2024. It is
also important to note that the incentive under the
demand incentive scheme will be in addition to the
incentive already offered under the Production
Linked Incentive Scheme for Automobiles &
Advanced Chemistry Cells respectively.
ELECTRIC PASSENGER VEHICLES SCHEME
The Electric Passenger Vehicles Scheme is applicable to 4-wheeler passenger
vehicles (“e-4W”) in India. Under the scheme, the government has significantly
reduced the customs duty on import of completely built-in units (“CBUs”), subject
to automobile companies investing and manufacturing in India. While the Ministry
of Heavy Industries (“MHI”) has released the scheme, please note that the detailed
guidelines for the implementation of this scheme will be issued subsequently by
the government. The key takeaways of the scheme are set out below:

Tenure: 5 years or as notified by Government of India.

Approving Authority: MHI (directly or through a project managing authority).
Eligibility: The following criteria is required to be met by an applicant: (i) global
group revenue (from automobile manufacturing) to be a minimum of ₹10,000
crore; (ii) total global investments along with group companies in fixed assets
to be ₹3,000 crores; and (iii) minimum investment commitment in India (by
setting a manufacturing facility) within 3 years to be ₹4,150 crores
(~ USD 500 million).
Other Conditions: The manufacturing facility(ies) should become operational
in 3 years from the issuance of the approval letter by the MHI and achieve a
Domestic Value Addition (“DVA”)1 of (i) 25% within 3 years; and (ii) 50% within
5 years from issuance of the approval letter.
Benefits under the Scheme: The approved applicant is permitted to import
CBUs manufactured by them outside India at a reduced customs duty of 15%.
Cap on Benefits: The benefit of lower customs duty of 15% will be applicable
for a period of 5 years from the date of issuance of letter of approval by MHI.
Further, the total duty foregone will be limited to the lower of investment
commitment made by the applicant or ₹6484 Cr (equal to incentive under PLI
scheme).
Consequences of Breach: The applicant is required to submit a bank
guarantee equivalent to the total duty foregone or ₹4150 crores, whichever is
higher. The bank guarantee can be invoked on non-achievement of the DVA
targets or failure to invest the minimum commitment amount in India.

LKS COMMENTS
Currently, the customs duty on import of CBUs is upto 100% in certain cases. This
will now be capped to 15% providing the initial boost to electric car manufacturers
to sell in India till they set up manufacturing capacities in India. This move may
optimistically result in new automobile companies entering the Indian market.

1. ‘Domestic Value Addition’ is an estimate of value added by an economy in producing goods and services for export.
DEMAND INCENTIVE SCHEME FOR
ELECTRIC 2 WHEELERS AND 3 WHEELERS
The Demand Incentive Scheme for Electric 2 Wheelers (‘‘e-2W’’) and 3 Wheelers
(‘‘e-3W’’) applies to e-2Ws and e-3Ws used for public transport or those registered
for commercial purposes. It has been implemented to promote e-mobility and
develop the EV manufacturing ecosystem in India.

Tenure: 4 months w.e.f. April 01, 2024.

Outlay under the Scheme: ₹500 crore, out of which, the demand incentive
will be allocated in the following manner: (i) ₹333.39 crores will be allocated for
e-2W; (ii) ₹33.97 crores will be allocated for 13,590 e-3W (e-rikshaw and
e-cart); and (iii) ₹126.19 crores will be allocated for e-3W (L5) and (iv)
remaining as administrative expenses.
Eligibility: The following criteria is required to be met by an Original
Equipment Manufacturer (“OEM”) applying under the policy: (i) the EV must be
registered as a ‘Motor Vehicle’ under the Central Motor Vehicle Rules (‘CMVR’);
and (ii) each vehicle model must be fitted with only advanced batteries and
must satisfy the performance criteria (in accordance with the definition
provided under the scheme).
Other Conditions: (i) The OEM must be registered with the MHI and must
derive approval for each of its EV models from the MHI; (ii) the EV must be
manufactured in India and the assembly and manufacturing of the EV shall be
localized as set out under the Phased Manufacturing Program; (iii) the EV must
fulfil with the parameters set out under the CMVR pertaining to inter alia,
classification, road worthiness, registration and must obtain a certificate of
eligibility from recognized testing agencies; (iv) the EV must have a
comprehensive warranty, suitable monitoring devices (for e-3Ws), and should
display a sticker indicating its purchase through this scheme.
Benefits under the Scheme: The scheme provides a demand incentive in the
form of an upfront reduced purchase price for the buyers, which will be
reimbursed to the OEM by the Government of India. The demand incentive is
based on battery capacity (i.e. energy content measured in kilowatt hours) and
will be ₹5000 e-2W and e-3W categories per kWh.
Cap on Benefits: The total demand incentive for an EV will be subject to (i) a
cap on maximum vehicles to be supported for each vehicle segment; (ii) a cap
on maximum ex-factory price to avail incentive; and (iii) a further cap of 15%
of the ex-factory price.
Approving Authority: MHI (directly or through a project managing authority).
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