FADA Petition for Quashing Finance Ministry Notifications Resulting in Loss of Compensation Cess Credit with No Transitional Mechanism
The Federation of Automobile Dealers Associations (FADA) has recently filed a petition with the Supreme Court, requesting the quashing of two notifications issued by the Ministry of Finance. These notifications, numbered 2/2025 and 9/2025, have been causing concern and uproar among automobile dealers across the country. The reason being, they result in the loss of accumulated compensation cess credit without any provision for a transitional mechanism. This move has not gone well with the dealer community, as it adversely affects their businesses and puts them at a significant financial disadvantage.
The compensation cess, introduced in July 2017, was essentially a tax on certain goods and services, including automobiles, to compensate the states for any revenue losses incurred due to the implementation of the Goods and Services Tax (GST). This tax was applicable for a period of five years, and the accumulated credit of this cess could be claimed by the dealers against the output GST liability. However, the recent notifications have put an end to this facility, which has caused a great deal of hardship for the dealers.
The automobile industry has been going through challenging times, and the pandemic has only made it worse. The dealers, who are already facing financial difficulties, are now being compelled to bear the brunt of this abrupt decision. With the accumulated cess credit now rendered useless, the dealers will have to bear the additional burden of paying the output GST liability, which will further escalate their operational costs. This, in turn, will adversely affect their profitability and financial stability.
The FADA, in its petition, has argued that the sudden withdrawal of accumulated compensation cess credit without any transitional mechanism in place is unjust and unfair. The dealers are being forced to bear the consequences of a decision they had no control over. The government, on the other hand, has the power to make changes and implement policies, but it should ensure that these changes do not adversely impact the stakeholders.
Moreover, the lack of a transitional mechanism is causing confusion and ambiguity among the dealers. They are unsure of how to proceed with the sale and registration of vehicles as the loss of this credit has resulted in a significant increase in costs. This, in turn, has led to a slowdown in sales, affecting the entire automobile industry.
In addition to the dealers, this move is also likely to have a ripple effect on the consumers. With the increase in operational costs, dealers will be compelled to pass on this burden to the consumers, resulting in a rise in vehicle prices. This, in turn, will affect the purchasing power and affordability of the general public, leading to a decline in demand for automobiles.
It is imperative that the government takes into consideration the impact of its decisions on all stakeholders, not just for the present but also for the future. The sudden and abrupt withdrawal of accumulated compensation cess credit goes against the principles of a fair and just tax system. The dealers have invested in good faith, based on the policies in place, and the government cannot take away their right to claim this credit without a transitional mechanism in place.
Furthermore, the government should also consider the financial stability of the dealers, who are significant contributors to the economy. The sudden withdrawal of accumulated credit will have a direct impact on their ability to pay taxes, employee salaries, and sustain their businesses, leading to unemployment and an economic slowdown. The automobile industry has been one of the key drivers of the country’s economic growth, and any such decisions that adversely affect this sector will have a domino effect on the country’s overall growth.
The FADA’s petition is an attempt to draw the attention of the judiciary to the issues faced by the automobile dealers and urge them to intervene in the matter. The dealers do not seek special treatment but rather fair and just policies that do not put them at a disadvantage. The sudden withdrawal of accumulated compensation cess credit without any transitional mechanism goes against the principles of fairness and justice.
In conclusion, the FADA’s petition to quash the two notifications issued by the Ministry of Finance is a step in the right direction. The automobile industry, which is already facing tough times, cannot afford to bear the additional burden of the sudden loss of accumulated cess credit. The government must consider the impact of its decisions on all stakeholders and ensure that the policies implemented are fair and just. The judiciary must intervene in this matter and provide relief to the automobile dealers, who are the
