Automobile Dealers Face Rs 2B Loss Over GST Compensation Cess

16 Sep 2025 CW Team

Automobile industry stakeholders, including the Society of Indian Automobile Manufacturers (Siam), met Central Board of Indirect Taxes and Customs (CBIC) chief Sanjay Kumar Agarwal on Friday to discuss relief over the removal of compensation cess on cars, which could result in losses exceeding Rs 20 billion for dealers.

Sources indicate that the industry is unlikely to receive any refund or adjustments, as the government is expected to notify the new rules within days. The GST Council last week decided to implement a two-tier GST structure of 5 and 18 per cent, replacing the current four-slab regime and compensation cess.

Sai Giridhar, vice-president of FADA, explained: “Dealers have paid over Rs 40 billion in compensation cess to purchase cars from OEMs. All dealerships are trying to liquidate stock before 22 September to claim as much of the cess as possible.” Dealers are offering discounts to clear inventory, but estimates suggest around Rs 20 billion of compensation cess will remain on 600,000 passenger vehicles as of 22 September.

With 15,000 dealers nationwide, many of whom are MSMEs, 20–25 per cent of working capital is tied up in compensation cess. The industry warns that without a solution, job losses and dealership closures could rise significantly.

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