While car buyers rejoice, dealers with old inventory stare at ₹2,500 crore hit

Estimated cess loss to dealers will be in excess of ₹2,500 crore, said FADA and dealer sources.

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While cars, two wheelers and SUVs may have gotten cheaper, the new GST slabs have thrown up a ₹2,500 crore pinch for passenger vehicle dealerships. With the compensation cess set to lapse on September 22, passenger vehicle dealers stuck with old stock at higher tax rates will face a sharp pinch with no clarity on the mechanism to claim back or refund the cess balance.Sheena Sareen, partner, Deloitte India said, “The transition period until September 22 will be critical. With the discontinuation of compensation cess, dealers holding inventory purchased at the old higher tax rates risk stranded costs and work capital stress. Transition rules or refund mechanism for the locked in compensation cess would have avoided sudden disruption across the dealer network.”The compensation cess is valid only for passenger vehicles, with commercial vehicles and two wheelers not affected by this problem. Also in the PV category, the worst affected will be large cars and SUVs which attracted 20 per cent and 22 per cent cess. “That pretty much covers 60 per cent of India’s PV sales,” said a top Rajasthan-based dealer.

Understandably the Federation of Automobile Dealers Associations (FADA) is already raising their concerns about this issue. FADA president CS Vigneshwar said: “One area that needs earliest clarification is about levy and treatment of cess balances currently lying in dealers’ books so there is no ambiguity during transition.” Estimated cess loss to dealers will be in excess of ₹2,500 crore, said FADA and dealer sources.

Already some OEs have taken pre-emptive action to minimise the sting of the cess. According to dealers, M&M informed its network that from August 20 onwards, it would bill only those categories of vehicles with the minimum compensation cess component (1 per cent, 3 per cent) and not the higher slab (15 per cent, 20 per cent, 22 per cent). “This was done despite the fact that in the run up to the festival season, there was demand for those vehicles,” said a Delhi-based M&M dealer. The company announced in its stock market notification for August sales that it “consciously decided to bring down the wholesale billing to minimise the stock being carried by dealers”.Others are still waiting for SIAM and FADA to collectively raise the issue and lobby the govt for a solution. But that means no factory dispatches can be made in the run up to Dusshera. The marketing head of a top PV manufacturer said, “Till September 22, unless there’s clarity on the compensation cess issue, we can’t dispatch vehicles and the dealers can’t buy even if there’s demand for the cars.”

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