GST rejig: Auto dealers mull options to deal with cess removal
NEW DELHI: Car dealers are looking at options to set off the impact of withdrawal of GST compensation cess on their bottomlines, with some of them contemplating legal challenge to the move.While restructuring GST, the GST Council decided to increase the rate from 28% to 40% but withdrew the cess on cars that ranged from 1% to 12-15%. Although the move has provided relief to most car buyers, dealers have had to shell out the 12% tax but are unable to set it off against the cess paid by them on inventory that was lying with them.Dealers had petitioned govt to address their concern and were in talks with manufacturers, suggesting that burden be shared. “There is massive credit pending, which car dealers are unable to use and will have to write-off,” said an industry source. Dealers believe the decision was sudden as the cess was to continue till March 2026. But the GST Council, which has representatives from the Centre and the states, opted to move to the new regime, without giving them adequate notice, dealing a severe financial blow.Initial estimates of the dealers’ lobby had pegged the hit at Rs 2,500 crore, but impact is seen to be lower. Car dealers claim to be sitting on unsold inventory of a few lakh units, with auto industry complaining that sales slowed down after PM Narendra Modi announced Centre’s intent to move ahead with GST reduction before Diwali.Compensation cess has been discontinued for luxury and sin goods, effective Monday, leaving tobacco and tobacco products, as only items on which it will continue till March, helping repay the interest and principal on the bonds that were issued to deal with compensation during Covid-19.
