Sanjay Kumar Agarwal, chairman of the Central Board of Indirect Taxes and Customs (CBIC), on Wednesday made it clear that there will be no refund of compensation cess already paid on stocks of automobiles, aerated drinks and coal lying with dealers as on September 22.
The Lap of unutilised ITC
“As far as the stocks as on September 22, in cases like automobiles, aerated drinks and coal, if compensation cess is paid and input tax credit (ITC) is taken, in that scenario, ITC taken on compensation cess will lapse. Since they don’t have to discharge compensation cess from September 22, there is no question of utilisation of ITC on compensation cess,” Agarwal said.
Earlier in the day, automobile dealers had sought clarity on the issue. Industry sources said the Federation of Automobile Dealers Associations (FADA) had raised concerns about the levy and treatment of cess balances currently lying in dealers’ books, warning that the lack of clarity during the transition could lead to disputes.
Dealer losses and the call for a solution
Dealers estimate that the compensation cess already paid on unsold inventory, pegged at about 600,000 units, could result in losses of up to Rs 2,500 crore. OEMs have recovered the cess from dealers, who in turn are supposed to pass it on to consumers. With the cess being removed after September 22, the amount already paid now stands blocked, with no relief in sight.
“The industry was looking forward to the government providing clarity regarding the cess balances to avoid ambiguity, especially during the festive season,” one source said.
With the CBIC chairman’s statement, it is clear that there will be no adjustment or refund of the cess paid on existing stock. Industry sources said that manufacturers and dealers need to resolve the matter among themselves.