Auto Majors gets Rs.10,000 Crore GST Notice for Non-Payment of Compensation Cess

The Central Government issued tax notices totalling Rs.10,000 crore to automakers on Monday for failing to pay the compensation cess imposed under the Goods and Services Tax (GST) on utility vehicles, as per sources.

Some of the best-selling vehicles in the category are Mahindra’s Thar and Scorpio, Tata Motors’ Safari and Harrier, Hyundai’s Creta, and Maruti’s Brezza.

The GST authorities have sent notices to the majority of automobile manufacturers for alleged non-payment of the SUV sales cess from the financial year 2018 to 2022, according to sources who spoke on the condition of anonymity.

These taxes pertain to vehicles sold before 2022. “Auto companies association met with revenue secretary Sanjay Malhotra in early October, seeking relief from these GST notices,” according to sources.

In August, the carmakers filed an appeal with the GST Commissionerate, citing a lack of clarity in the cess laws throughout the relevant period. They argued how SUVs were defined, particularly whether ground clearance should be evaluated as “un-laden” or “laden.” The determination that ground clearance would be measured ‘unladen’ was not clarified until July 2023, according to the automakers.

However, the government has chosen to stick to its guns. Utility vehicles are subject to a 28% GST rate, with a 22% GST compensation.

In July 2022, the GST Council clarified that the cess will apply to all utility vehicles. Later, in December 2022, the Council clarified that the same tax and cess would apply to all SUVs with an engine size of 1,500 cc or more, longer than 4 metres, and a ground clearance of 170 millimetres.

“The 2022 clarification that leads to the show cause notices today makes such a clarification retroactive and would undoubtedly be problematic as the indirect tax burden cannot be now recovered from the consumers and will directly impact the companies”, a tax professional stated.

The Society of Indian Automobile Manufacturers has requested that the Ministry of Finance intervene in this matter.