Hoping GST reduction benefits are passed on honestly to consumers, working to resolve compensation cess issue: Piyush Goyal

Goyal also said that there will be a greater variety of cars coming to India with the FTAs.

Union Commerce and Industry Minister Piyush Goyal today said that he is hoping the automobile industry will pass on the benefits of the recent Goods and Services Tax (GST) rate rationalisation to the consumers, even as the government is working to resolve the issue of compensation cess for the existing stocks at the dealerships.

After the GST changes, internal combustion engine (ICE) cars and two-wheelers now fall in two tax slabs -- 18% and 40%. Three-wheelers and commercial vehicles (CVs) are placed in the 18% slab. There is no cess on automobiles now.

Earlier, ICE cars were taxed at 28% GST in addition to a cess of 1% to 22%, depending on the car's length, type and engine capacity. This meant the total tax burden was between 29% and 50%. For ICE two-wheelers, GST was also 28%, with an additional cess of up to 3% based on engine size, making the overall tax 28% to 31%. On ICE three-wheelers and CVs, there was a flat 28% GST with no cess.

For electric vehicles (EVs), nothing has changed as they continue in the 5% slab. Hydrogen fuel cell vehicles (FCEVs) have been shifted from the 12% slab to the 5% slab. Both EVs and FCEVs did not attract any cess earlier, and that remains the same now.

The new GST rates on vehicles will become effective from September 22, the first day of the nine-day Navaratri festival.

"I hope all of you will give good deals to consumers, as families will come in larger numbers from September 22. I hope you all honestly pass on the benefits of the GST reductions to the consumers," Goyal said at the 7th Auto Retail Conclave organised by Federation of Automobile Dealers Associations (FADA).

While lower taxation will result in vehicle prices decreasing, original equipment manufacturers (OEMs) have already announced that they will pass on the benefits to the consumers.

On the cess issue, Goyal said that automobile dealers had reached out to the finance, and commerce, and industry ministries to resolve the matter for their existing stocks. "The finance ministry is taking it up and I will also take it up with the ministry in terms of what could be an amicable way to go forward. Whenever there is a transition, there are difficulties. I am sure the OEMs and you (dealers) must also be working together to see how to ameliorate the issue. While we are working at the government level, I feel the OEMs also have some responsibility on this," he added.

Dealers who have already bought vehicles from OEMs at the old GST rate (28% plus cess) will not be able to claim credit for the cess paid after September 22. Industry estimates put this unclaimed cess at around Rs 2,500 crore.

Because of this, dealers are asking for a mechanism that allows refunds of the cess they have already paid. Earlier this week, Moneycontrol reported that the Central Board of Indirect Taxes and Customs (CBIC) is holding discussions on creating such a mechanism.

Talking to Moneycontrol on the sidelines of the 7th Auto Retail Conclave, FADA President C S Vigneshwar said that the compensation cess was started when GST 1.0 came, for the reason that certain states needed to be compensated for the loss of revenue. "It was supposed to be paid by the end user. Because I am holding stock right now, unfortunately, the current announcement says that it will lapse. The whole point of it lapsing does not make sense because I, as a middleman carrying stock, should not be punished because I am not the end user of these vehicles," he added.

"We have been speaking with the government. We have written to them. We are trying to liaise with them and see what best can be done because, in all fairness, it is not a cost that I need to bear. The government is yet to get back to us. We have been having a few exchanges. But there is nothing concrete yet. This ambiguity needs to go away because only then can we start getting back to business as usual. Right now, nothing is happening as everyone seems to be waiting for September 22," Vigneshwar observed.

Vigneshwar said that the dealers might take legal recourse. "But we need to see if there is any other door open with the government, in terms of liaisoning with them and bringing this to a logical end," he noted.

Regarding the GST rate rationalisation, Vigneshwar said: "This is a big bang reform. It is path-breaking. It took a lot of courage for everyone to come together. You had the central and state governments all come together, and they made a unified decision. Everyone wants the nation to move forward. A reduction in prices means that there is excitement in the market, and the industry is quite determined to pass on the benefits of this price reduction to the customers. We have already seen an increase in enquiries and customer footfall."

While GST rate rationalisation is expected to boost the domestic demand, the Indian government is also working closely with several countries to finalise free trade agreements (FTAs).

"We are working on FTAs with a lot of countries. We are seeing a lot of companies coming and investing in India. Certainly, we will be protecting our domestic manufacturers and OEMs, but we will also have to have certain fair competition because competition brings efficiency and helps you improve your product quality. Competition ensures that the customer gets a fair deal. So, we will have a right balance in our FTAs where our OEMs are protected and our customers also have wider options to choose from," Goyal said.

"With the FTAs happening, you will see a greater variety of cars coming to India. We will have more models and more companies coming to India. If you give them sufficient business, they may want to start initially assembling and then manufacturing in India. Auto dealers have a unique role to help takers of these companies with the best service, best insurance and so on," the Minister pointed out.