Govt needs to resolve compensation cess issue, says FADA President

New Delhi [India], September 11 (ANI): The Federation of Automobile Dealers Associations (FADA) has urged the government to bring clarity on the issue of compensation cess, saying that the burden should not fall on dealers who are only part of the distribution chain.

Speaking to ANI on the sidelines of the 7th Auto Retail Conclave of FADA, C S Vigneshwar, President of the Federation of Automobile Dealers Associations (FADA), said, “I think the auto manufacturers are very clear, and FADA, we are very clear that we need to pass on the GST reduction to the customer. The only issue comes is regarding the compensation cess. The compensation cess has been an issue for the last week. We've been trying to speak with the governments and different departments in the governments to figure out how we can handle compensation cess, because the compensation cess was supposed to be paid by the end user.”

He emphasized that the industry is ready to transfer the benefits of GST rationalisation to consumers, but the lack of clarity on cess payments could create problems. “Here, we are part of the logistics, the whole distribution system, and it would be unfortunate if we are bearing the cost of the compensation cess. I think in all fairness the government has to remove this ambiguity, bring in a fair resolution where it's a win-win for all,” Vigneshwar said.
Compensation cess on automobiles will cease to exist effective September 22. 

Currently, automobiles are subject to GST at 28 per cent and in addition to it, a compensation cess ranging from 1 per cent on small cars to 22 per cent on SUVs are levied, depending on the type of vehicle. It was levied initially for 5 years of the GST rollout to compensate states for their revenue loss. However, it was extended during Covid to make good for the shortfall in revenue.

On September 22, the accumulated compensation cess will lapse, and auto companies are asking for clarification from the finance ministry on the cess on inventories left with dealers. They are demanding either allowing it to be adjusted against their tax liability or a refund from the government. 

Effective September 22, petrol and diesel cars with engine capacities of up to 1,200 cc and 1,500 cc will attract 18 per cent GST, while those above that will attract the highest 40 per cent.

The auto body welcomed the government’s GST reforms, saying the step will boost sales and consumption in the sector. “It's been amazing. I mean, the whole concept of a price reduction is great, especially when it comes to a tax reduction. And this big bang reform is certainly going to create a bounce in the market. It's going to make sure that the consumption patterns, the whole flow of money, become better. And this is going to help us out,” he said.

Vigneshwar also acknowledged Union Minister Nitin Gadkari’s consistent support for the auto industry, highlighting his push for road safety and green fuels. “Gadkari ji has always been very supportive of our industry. One of his biggest passions is, of course, road safety. To support his vision, we have actually roped in an NGO and launched a road safety video this time. Secondly, he has always advocated for green fuels, being good to the environment, and the different kinds of fuel options available apart from the traditional diesel and petrol,” he noted.

With the festive season approaching, Vigneshwar said dealerships are prepared to serve customers with new vehicles and attractive deals. “We are prepared, have our showrooms open, we have our cars in our lots, and we also have our people trained so that they receive you as guests into our showrooms. It's a good time to be in the market for a new vehicle,” he said.

He added that the benefits of the GST rationalisation would not only impact the present but also have a long-term effe