The Federation of Automobile Dealers Associations (FADA) has written to Finance Minister Nirmala Sitharaman requesting urgent provisions to allow automobile dealers to utilize their existing compensation cess credits under the new GST 2.0 framework announced on September 4, 2025.
In a letter dated September 5, 2025, FADA President C S Vigneshwar highlighted that dealers currently hold significant compensation cess balances in their electronic credit ledgers that risk becoming unusable under the reformed tax structure. The organization represents approximately 9,000 dealer principals operating 15,000 authorized dealerships across the country.
The issue stems from the GST Council’s decision to subsume the compensation cess regime for automobiles into the new GST rate structure. Under GST 2.0, the tax system has been simplified from four slabs to a 2+1 structure with targeted rate reductions on mass-mobility categories.
However, since no fresh cess liability will arise on outward supplies, existing cess credits cannot be utilized against regular GST payments under current regulations.
FADA warned that this situation could create working capital constraints for dealers, particularly smaller operators. The organization noted that 95 percent of dealer inventory is bank-funded through floor-plan and wholesale limits.
If cess credits become blocked, this could compress drawing power and increase utilization rates, potentially leading to liquidity stress during the festive season when inventory typically builds up.
The automobile retail industry employs approximately 5 million professionals, predominantly from micro, small and medium enterprises and local youth across every district of India.
FADA emphasized that dealers serve multiple functions beyond vehicle sales, including road safety services, financial inclusion, tax compliance, and skills development.
FADA has requested the government to introduce transitional provisions under relevant sections of the CGST Act to allow the transfer of compensation cess credit balances as of September 21, 2025, to the regular GST credit ledger.
The organization argued that input tax credit validly availed under existing law constitutes a vested right that cannot be withdrawn without express statutory authority.
The letter cited legal precedents and compared the situation to the 2017 GST implementation, when transitional credits from excise, service tax, and VAT were permitted under specific provisions. FADA contended that a similar mechanism would be justified for cess levied under the GST Compensation to States Act, 2017.
Founded in 1964, FADA operates as the apex national body of the automobile retail industry, representing dealerships across two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, tractors, and construction equipment. The organization has requested an urgent appointment with the Finance Minister to discuss the matter.