New amendment in CGST puts burden on auto dealers' capital requirement: FADA

by Autocar Pro News Desk , 07 Mar 2019


The Federation of Automobile Dealers Associations (F A D A), the apex body of automobile retail industry today said that it feels that the recent amendment made by the government in Section 49 of CGST (Central GST) Act by introducing new section 49A, will lead to an unwarranted blow for the auto retail sector. 

According to the apex body the amendment will impact on the method of tax payment and therefore, have major influence on the cash flow of auto retail industry, while discharging its tax liability. FADA says the amendment which comes into effect from February 1,2019, will see the IGST (Integrated GST) credit to be first utilised and when such credit is exhausted only then the credit of CGST and SGST (State GST) if any, shall be utilised against output tax liability. 

A majority of auto dealers purchases vehicles from OEMs on IGST and sell it to the end customers on SGST which they will not be able to set it off by utilising the existing credits as according to the new law the IGST has to be used first for setting off, followed by CGST and the remaining for SGST. 

This it says will create an additional requirement of working capital to around Rs 1 crore for four-wheeler dealers and Rs 50 lakh for two-wheeler dealers on a monthly basis (estimated) for 15,000 auto dealerships across the country.

In addition, the apex body says at present the automobile dealers in the country are faced with following specific hardships — blockage of ITC available in books of account; need for additional working capital to match blockage of ITC; additional cost of working capital in the form of interest and reduced profitability.

The Rs 5 lakh crore automobile retail trade is already reeling under the pressure of unexpected low sales from the start of the festive season from September 2018 and the de-growth continues even till February 2019. This has further increased and coupled with high inventory build-up, high insurance cost, squeeze in liquidity from NBFC and banking institutions have already dented the financial health of auto dealers. 

F A D A says it earnestly appeals to the prime minister, finance minister and the members of the GST Council to 'urgently re-look into this amendment and requests for an immediate action for revoking' the amendment for the auto retail trade as otherwise the amendment shall have a serious impact on the sustainability of the auto retail trade.