As auto industry stares at Rs 2,500 crore hit from compensation cess already paid on festive season passenger vehicle inventory, Society of Indian Automobile Manufacturers (SIAM) has requested the government for a suitable resolution to ensure viability of vehicle dealers.
"As SIAM, we are fully cognisant of the existence of compensation cess lying in the books of the dealers and SIAM has already represented this matter to the Ministry of Finance. We are very hopeful that a suitable resolution could be achieved to tide over this short-term interest that we have," SIAM President Shailesh Chandra said while speaking at FADA's 7th Auto Retail Conclave.
Dealers pay the cess when they buy vehicles from manufacturers (OEMs) and collect it back from customers when the vehicles are sold. Essentially, dealers pay GST and cess at the wholesale stage and recover these costs at the retail stage.
From September 22, GST on small cars, motorcycles up to 350cc, three-wheelers, buses, trucks, and ambulances will drop from 28% to 18%. The associated cess, which ranges from 1% to 22% across different passenger vehicles, will also be removed.
With the compensation cess set to end, dealers holding old stock purchased at higher tax rates face losses, and there is no clarity on how they can claim back or refund the cess balance.
According to the Federation of Automobile Dealers Associations (FADA), around 6 lakh passenger vehicles are currently in the system. A conservative estimate, with an average vehicle price of Rs 12.5 lakh and an average cess of 3%, puts the cess per vehicle at around Rs 38,000. For 6 lakh vehicles, this amounts tonearly Rs 2,500 crore - a significant amount that is currently blocked on dealers' books.
"We bought inventory at one rate, and after September 22 we will have to sell it at another, without cess. That gap hits only the dealers,” FADA CEO Saharsh Damani said. “Legally this [inventory] is the property of the dealer and not the property of the government. Either the government refunds it back, or brings in an amendment in the GST Act through which we can adjust the cess amount against either CGST (central GST) or IGST (integrated GST),” he said.