GST Rejig: FADA Moves SC for Relief on Compensation Cess

The apex body of the automobile retail industry, Federation of Automobile Dealers Associations (FADA) on Friday moved the Supreme Court seeking relief over the accumulated compensation cess after the Goods and Services Tax (GST) restructuring, reliable sources told ACKO Drive.

The new GST norms came into effect on September 22.

"GST 2.0 is a proud reform. But ₹2,500 crore of genuine, tax-paid compensation cess credits now risk lapsing — hurting thousands of MSME auto dealers. FADA has moved the Supreme Court, not against reform, but for fairness & trust," said Saharsh Damani, CEO, Federation of Automobile Dealers Associations (FADA).

This comes weeks after automobile dealerships in the country started exploring ways to lessen the financial burden of the GST compensation cess elimination, with several considering legal action against the policy change.

GST Restructuring

During the GST restructuring, the GST Council approved raising the tax rate from 28 per cent to 40 per cent while simultaneously eliminating the cess on automobiles that previously varied between 1 per cent and 12-15 per cent. 

Impact on Dealerships

This adjustment has benefited most vehicle buyers, but, dealerships have been required to pay the 12 per cent levy but cannot offset it against the cess they previously paid on existing stock in their possession.

According to preliminary calculations by dealer associations, the estimated financial impact of the compensation cess removal stands at ₹2,500 crore, though actual losses appear to be somewhat lower. 

Automotive retailers have reported holding unsold stock comprising several hundred thousand vehicles, as the automobile sector has raised concerns about declining sales following PM Modi's pre-Diwali announcement regarding the Centre's plans to reduce GST rates.