Auto Dealers Seek Urgent Relief From Finance Ministry As Compensation Cess Credits Set To Lapse
Dealers accumulate CC credits as part of their inventory purchases, which can only be used to offset future compensation cess liabilities.
With the upcoming GST overhaul scheduled to take effect from Sept. 22, several automobile dealers have approached the Finance Ministry, urgently seeking clarity and relief over the fate of accumulated compensation cess (CC) credits.
These credits, which have been amassed through stock purchases under the current tax regime, are at risk of becoming non-recoverable once the compensation cess is removed under the new GST structure.
Under the existing system, luxury and premium cars attract 28% GST plus a compensation cess ranging from 17% to 22%. Dealers accumulate CC credits as part of their inventory purchases, which can only be used to offset future compensation cess liabilities.
However, with the upcoming GST rationalisation introducing a flat 40% tax rate on these vehicles and eliminating the separate cess, these credits will no longer have any use.
Industry insiders warn that the inability to utilise these credits could lead to significant financial losses for dealers, especially ahead of the festive season when inventories are typically high.
Auto dealers currently hold approximately 55 days’ worth of vehicle stock. They have conveyed to the Finance Ministry that the accumulated compensation cess credits represent a significant financial outlay for dealers, and without a clear transition plan or relief mechanism, the upcoming GST overhaul could impose an unintended financial burden on the industry.
The Finance Ministry is yet to issue formal guidance on this issue, with dealers hopeful for a resolution that allows for the carry-forward or reimbursement of unused credits.
This development adds a critical layer of complexity to the broader GST reforms, which aim to simplify tax rates but must also address transitional challenges for businesses.
The revised GST rates, including the removal of compensation cess on luxury vehicles, are slated for implementation from Sept. 22, 2025, marking a major shift in India’s indirect tax landscape.
