Auto dealers fear losing ₹2,500 crore in GST cess credit as Sept 22 deadline nears

India's auto dealers are urging the government to extend the deadline for adjusting compensation cess credit under the Goods and Services Tax (GST), warning that nearly ₹2,500 crore worth of credit sitting in their books could lapse after September 22, when the current cess regime is expected to end.

“All vehicles, starting from an Alto with a cess of 1% to luxury vehicles with a cess of 22%, carry an input cess on dealer books,” said Naveen Philip, MD, Popular Vehicles & Services. The Federation of Automobile Dealers Associations (FADA) has come out with the approximate value of ₹2,500 crore lying in all dealership books. This is a huge amount for any dealership to bear.” He added that large dealers alone may have ₹15-20 crore each in cess accounts.

This credit accumulated when dealers purchased vehicles from manufacturers with compensation cess included. But if they aren’t able to sell those vehicles before the cess ends on September 22, that tax component cannot be claimed or adjusted, effectively turning it into a loss.

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Adding to the uncertainty is the lack of clarity from the government. The cess was originally meant to expire in March 2022 but was extended until March 2026 to repay GST compensation dues to states. However, recent statements from tax authorities have suggested that the cess could now lapse this month, catching many dealers off guard.

“Since cess is disappearing from September 22, it would lapse,” said Arun Malhotra, Auto Industry Expert & Former MD at Nissan India. Drawing an analogy from cricket, he added: “I link it to something like a T20 match where the Duckworth-Lewis method is operating. Will it lapse on 21st or will you get the full overs, that has to be seen.”

Dealers say this is especially difficult timing, as the Shraddh period — traditionally considered inauspicious for purchases — is keeping buyers from closing deals, and most retail demand is expected to pick up after September 21, when the festive season begins. “The enquiries are very robust, but the only problem is in terms of retailing out, and people are tending to wait,” said Philip.

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Meanwhile, automakers have already passed on GST benefits to customers by cutting vehicle prices, particularly for smaller cars and SUVs. According to Malhotra, “Prices post September 22 would go down from 7% to 9%. September and October will be great, but is it a consistent momentum, or is it a flash in the pan?”

Industry bodies like FADA and Society of Indian Automobile Manufacturers (SIAM) have taken up the issue with the government and are waiting for clarification on whether cess credits will be allowed to continue beyond September 22.

Dealers say that without an extension or solution, this could become a major financial burden, especially at a time when most of the sales momentum is expected after the current deadline.

For the full interview, watch the accompanying video

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