The Indian automotive sector has intensified its appeal for government intervention regarding an estimated ₹2,500 crore in accumulated compensation cess credits that dealers are unable to transition under recent tax changes. Industry representatives raised this critical financial matter during pre-Budget meetings with Finance Minister Nirmala Sitharaman.

The Core of the Tax Dispute

The controversy centers on tax balances related to the compensation cess that were sitting in the accounts of vehicle dealerships. Following the implementation of the GST 2.0 regime on September 22, the rules did not permit these unutilized cess credits to be carried forward, leading to the imminent threat of them lapsing entirely.

This situation poses a major financial burden on the dealer network, a large portion of which consists of Small and Medium Enterprises (MSMEs). Industry bodies have highlighted the necessity of government action to safeguard these tax-paid credits.

Industry Actions and Appeals

• Pre-Budget Consultations: Auto industry groups, including the Society of Indian Automobile Manufacturers (SIAM), emphasized the economic damage to the dealer community during discussions with the Finance Minister.
• Legal Action: The Federation of Automobile Dealers Associations (FADA) escalated the issue in October by filing a petition with the Supreme Court. FADA stressed that their legal move was a pursuit of “fairness and trust” rather than an attempt to oppose the tax reform itself.
• Prior Intervention Request: Before the pre-Budget talks, the sector had previously reached out to Prime Minister Narendra Modi, urging him to resolve the impasse and prevent the massive loss of these credits.

In addition to the compensation cess matter, the sector also used the opportunity to discuss broader issues, such as the need for improved ease of doing business and streamlining complex compliance procedures related to the GST portal ahead of the forthcoming Union Budget.