By WAF Auto News Desk
“A Landmark Move in India’s Auto Retail Space”
In a decisive development that could shape the future of tax transitions in India, the Federation of Automobile Dealers Associations (FADA) has moved the Supreme Court over the issue of blocked compensation cess credits, amounting to nearly ₹2,500 crore.
The move follows the rollout of GST 2.0 on September 22, 2025, a major tax reform that abolished the compensation cess previously levied on certain vehicle categories.
While the reform aims to simplify taxation and enhance ease of doing business, the unintended consequence has been the blocking of legitimate input credits held by dealers across the country.
What Triggered the Dispute?
Under the previous GST regime, automobile dealers paid GST + Compensation Cess while purchasing vehicles from OEMs.
These levies were recoverable when the vehicles were sold to end customers.
However, with the abolition of the cess under GST 2.0, these credits have become stranded in dealers’ books—unusable, non-transferable, and at risk of expiry.
For thousands of dealerships, especially MSME-run showrooms, this has created a severe cash flow crunch and disrupted working capital cycles.
Anuj Guglani, CEO, World Auto Forum comments, “The automotive industry has always been a driver of India’s growth story. As the Supreme Court takes up this landmark case, all eyes are on whether fiscal reform can coexist with fairness—and whether the system will honour credits rightfully earned under previous law.”
FADA’s Appeal: Fairness in Transition
In its plea, FADA has urged the apex court to direct the government to:
- Allow carry-forward or offset of these credits against other GST liabilities, or
- Permit a refund mechanism for the cess credits accrued under the earlier system.
As FADA CEO Saharsh Damani stated, “This is not a fight against GST 2.0—it’s a call for fairness and trust. Dealers across India paid these dues legitimately, and those funds should not vanish simply because the law evolved.”
The association emphasizes that reforms must be prospective, not retroactive, and should not penalize compliance done in good faith.
Why It Matters: The ₹2,500 Crore Question
The auto retail ecosystem, employing over 30 lakh people, relies heavily on liquidity to sustain operations.
With roughly 6 lakh vehicles in stock and an average cess rate of 3%, the blocked amount is estimated at ₹2,500 crore—a significant working capital hit.
Dealers warn that without timely resolution, this could lead to:
- Higher borrowing and interest costs
- Delays in inventory turnover
- Pressure on employee payments and operational efficiency
Possible Outcomes and Next Steps
Legal experts suggest the Supreme Court may seek a policy clarification from the GST Council or Ministry of Finance before ruling.
Industry insiders also expect discussions in the upcoming winter session of Parliament, where transitional provisions could be introduced.
If the government enables a one-time adjustment window, it would restore faith in tax consistency and strengthen India’s image as a reform-friendly economy.
A Precedent for Fair Reform
FADA’s Supreme Court move represents more than an industry grievance—it’s a test of balance between reform and justice.
As India progresses toward a modern tax framework, how policymakers handle this issue will signal their commitment to both progressive governance and equitable transition.
In the words of one senior dealer principal:
“Reforms must move the country forward—but they should never leave compliant businesses behind.”
This is a Developing Story – WAF Auto News Desk
