Several top automakers, including Mahindra, Tata Motors, Hyundai, and Maruti, have received tax notices for unpaid compensation cess on utility vehicles sold prior to 2022. Popular models like Mahindra's Thar and Scorpio, Tata Motors' Safari and Harrier, Hyundai's Creta, and Maruti's Brezza are among the vehicles involved. The total liability for the automotive industry is estimated to be around Rs 10,000 crore, according to sources.
These notices were issued by CGST offices across various jurisdictions. The car manufacturers, through their industry association, met with Revenue Secretary Sanjay Malhotra in early October 2023 to request relief from the tax demands. However, the government has maintained its stance that utility vehicles are subject to a 28% GST, along with a 22% compensation cess.
The issue stems from a clarification made by the GST Council in July 2022, which stated that the compensation cess applies to all utility vehicles. In December 2022, the Council further elaborated that the tax and cess would apply to SUVs with an engine capacity of 1,500 cc or more, a length exceeding 4 meters, and a ground clearance of 170 millimeters.
Tax experts have expressed concern that this clarification is effectively retroactive, placing a financial burden on carmakers who cannot recover the additional tax from consumers for vehicles already sold. Legal experts believe that these notices may face challenges on constitutional grounds, as they could be considered arbitrary and result in unreasonable tax demands for the period prior to the clarification.
Despite the industry’s pushback, Finance Minister Nirmala Sitharaman defended the decision, asserting that the 2022 clarification did not introduce a new tax but merely clarified existing provisions.
The outcome of this tax dispute will have significant implications for automakers, potentially impacting their financials due to the unrecoverable cess. This case highlights the importance of clarity in tax policy and the need for timely communication to avoid retroactive taxation issues.
CAclubindia
