Commerce and Industry Minister Piyush Goyal on Wednesday said he will consider taking up with the Finance Ministry the issue of supporting dealers on the utilisation of the compensation cess, following the GST 2.0 announcement.
“I will do whatever best I can, subject to whatever is possible. But, whenever there is a transition, there are always some difficulties. I am sure the OEMs and you must also be working together to see how this issue can be remediated. While you are engaging with the government, I believe the OEMs also have a responsibility on this,” he said.
The Minister was speaking at the 7th edition of the Auto Retail Conclave, organised by the Federation of Automobile Dealers Associations (FADA).
Under the new GST regime, electric vehicles (EVs) will continue to attract 5 per cent GST, while the small car segment will fall under the 18 per cent slab, down from the previous 28 per cent slab. On the other hand, premium SUVs, high-end EVs and luxury cars will attract a 40 per cent tax rate.
The automobile industry has welcomed the discontinuation of the compensation cess levy but urged the government to address the treatment of cess balances currently lying in dealers’ books on unsold inventory, to avoid ambiguity during the transition. The revised GST rates will take effect from September 22, coinciding with the festive season.
FADA President CS Vigneshwar told ETAuto that cess, meant to be borne by the end user, is currently carried by dealers before being passed on to customers.
He added that although enquiries and showroom walk-ins have been strong currently, the ambiguity over cess must be resolved urgently. Otherwise, dealers risk missing out on the festive season, facing financial strain, and being unable to lift vehicles for sale. The potential loss for dealers, he cautioned, could exceed ₹2,500 crore.
Industry body Society of Indian Automobile Manufacturers (SIAM) has also written to FM Nirmala Sitharaman requesting support on this issue.
“As SIAM, we are fully cognizant of the existing concern of the compensation stress lying in the books of the dealers and SIAM has already presented this matter to the Ministry of Finance and is hopeful of a suitable resolution to tide over this short-term concern,” President Shailesh Chandra said at the conclave.
On Monday, FADA wrote to Prime Minister Narendra Modi, requesting that the balance in the compensation cess ledger as of September 21 be transferred to the IGST/CGST credit ledger for use against regular tax liabilities.
Dealer-OEM Agreement
The minister urged dealers to collaborate with auto companies to develop a framework or charter, ensuring that any player entering the Indian market commits to continued local presence and service support, even if it exits.
He added that dealers, as the bridge between customers and the automobile industry, hold a unique position that can shape the reputation, credibility, and business of auto companies through the quality of service they deliver.
In the past, global automakers like Ford and GM exited the Indian market, leaving dealers in a difficult position.
Meanwhile, FADA has been working with manufacturers on a model dealer agreement, reviewing over 200 contracts across 24 countries to benchmark Indian practices.
Vigneshwar said the framework, developed with inputs from legal experts and industry leaders, has already been fully adopted by Honda Cars and MG Motor, with several other automakers assuring implementation in upcoming renewals.
FTAs to drive growth
The minister said India’s pursuance of Free Trade Agreements (FTAs) with several developed markets is attracting global companies to invest in the country. While reaffirming support for domestic manufacturers, he stressed the need for fair competition.
With FTAs, he noted, India could see a wider variety of cars and brands entering the market, some of which may begin with assembly and eventually move to local manufacturing. He added that giving global players the opportunity to test products in India is key to drawing long-term investments and strengthening supply chain resilience. “We are at an inflection point. I see a big takeoff of your industry from now.”
Further, the minister praised the Auto Component Manufacturers Association (ACMA), calling himself a “big fan” and noting that the body has “never come and cried about anything, only engaged in constructive dialogue.”
He added that the components industry is confident, competitive, and consistently pushes for greater market access abroad.
