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Informist, Sunday, Oct. 19, 2025

 

NEW DELHI – The Federation of Automobile Dealers Association has approached the Supreme Court seeking relief over a compensation cess issue wherein the dealers are collectively facing a loss of over INR 25 billion due to the recent changes in the goods and services tax regime, the association's Chief Executive Officer Saharsh Damani wrote in a LinkedIn post late Friday.

 

"With the compensation cess now nil-rated, auto dealers across India suddenly find that their tax-paid credits worth over INR 2,500 crore (INR 25 billion) risk being wiped out, with no way to adjust or refund them," Damani said. "These aren't just ledger entries. They're the working capital that keeps showrooms open, salaries paid, and 50 lakh (5 million) families secure."  

 

Before changes in the GST regime took effect on Sept. 22, authorities used to levy a 1-2% compensation cess on top of GST on sales of small cars and 17-22% on bigger car sales. According to the new GST rules, no compensation cess is levied on the sale of automobiles. The compensation cess was levied to pay states for revenue losses arising from the transition to the GST regime introduced in 2017.

 

"GST 2.0 is a proud milestone in India's tax journey — simpler, transparent and people-first. We at FADA have welcomed it wholeheartedly. But for thousands of Auto Dealers — mostly MSMEs (micro, small and medium enterprises) who have stood with every reform — one (cess) issue has caused deep distress," Damani said. "Protect what's rightfully earned. Build a bridge so genuine, tax-paid credits don't disappear overnight. Reforms should empower, not erase what's earned." 

 

Under the old GST rules, car dealers had to pay a compensation cess on bulk purchases from manufacturers. Later, when they sold those cars to customers, they would recover that amount by including the cess in the final sale price.

 

However, with the implementation of new GST rules last month, the compensation cess has been removed. As a result, dealers are now left with unsold stock on which they had already paid the cess, but they can no longer charge it to customers since the cess is no longer applicable. This has created a situation where dealers are unable to recover the amount they had paid earlier, leading to financial losses.

 

"Car companies have deep pockets; they can recover their losses, if any, by simply hiking car prices. Dealers cannot do that," a senior FADA official had told Informist earlier this month. 

 

The dealers' lobby body has made representations to the Centre seeking relief on this issue. Damani had previously sought a straight refund of this money or an amendment in the GST Act which would allow adjustment of the cess amount against central or integrated GST payments. The latter would require a Parliamentary amendment.   End

 

Reported by Anand JC

Edited by Tanima Banerjee
 

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