Automobile dealers urges Finance Minister to clarify on Compensation Cess
Consequences include festive-season liquidity stress, penal interest, potential covenant breaches, and refinancing pressure on banks/NBFCs precisely when inventory builds for the September-to-Diwali peak
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VELANKANNI RAJ B
New Delhi
The Federation of Automobile Dealers Associations (FADA) has written to Finance Minister Nirmala Sitharaman, and sought for an urgent appointment to get some clarifications on the GST 2.0 that subsumes the earlier Compensation Cess regime for automobiles.
“Dealers today hold significant, validly-availed Compensation Cess balances in their electronic credit ledgers. Once no further cess liability arises, these balances cannot be utilised against CGST/SGST/IGST under the current law,” C S Vigneshwar, FADA President, said in the letter dated September 5.
The industry body has requested the FM to transfer the balance lying in Compensation Cess Credit Ledger by September 21, to IGST/ CGST credit ledger, so their festive sales are not impacted.
According to dealers, there would be an estimated cess loss of ₹.2,500 crore to them.
“A substantial amount which an individual dealer will not be able to absorb thus eroding his working capital as more than 95 per cent of dealer inventory is bank-funded (floor-plan/wholesale limits). If cess credits become unusable, that value turns into blocked capital, compressing drawing power and raising utilisation.
Consequences include festive-season liquidity stress, penal interest, potential covenant breaches, and refinancing pressure on banks/NBFCs precisely when inventory builds for the September-to-Diwali peak,” Vigneshwar said.
This is not a revenue give-away, but it is about preserving legitimate, tax-paid credits and preventing avoidable strain on both MSME dealers and the financial system, he said.
He further said that the GST framework is designed for seamless flow of credit and lapsing of cess balances would contradict this foundational principle. “Dealers discharged cess on inward supplies with the legitimate expectation of utilisation. Denial now amounts to retrospective hardship,” the FADA President added.
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Published on September 8, 2025
