FADA seeks meeting with FM for relief on GST compensation cess of more than ₹2,500 crore

The Federation of Automobile Dealers Association (FADA) has sought a meeting with the Finance Minister, Nirmala Sitharaman, to get clarity on the transitional treatment of accumulated compensation cess credits of over ₹2,500 crore. FADA has also warned of a looming liquidity crunch for automobile dealers ahead of the festive season.

In a letter addressed to the finance minister, FADA president CS Vigneshwar has flagged an unintentional fallout arising from GST 2.0—auto retailers currently hold a significant amount of compensation cess balances in their electronic credit ledgers. With no fresh inflow of cess under the new GST rules, the existing credits run into the risk of lapsing for MSME dealerships if the government does not provide a transitional mechanism.

Vigneshwar also brought to attention the fact that banks fund more than 95% of the inventory of dealers. “If cess credits become unusable, that value turns into blocked capital, compressing drawing power and raising utilisation. Consequences include festive-season liquidity stress, penal interest, potential covenant breaches, and refinancing pressure on banks/NBFCs precisely when inventory builds for the September-to-Diwali peak,” the letter adds.

“Without a pathway to utilise these credits, dealerships—predominantly MSMEs—face a sharp working-capital shock. Over 95% of dealer inventory is bank-funded, and blocked credits would compress liquidity at a time when inventory builds for the September-to-Diwali peak,” the letter stated, as seen by Fortune India.

FADA, in its letter, has argued on legal and equitable grounds that input tax credits are a vested right under Section 16 of the CGST Act. The apex body of auto retailers also cited judicial precedents, namely Eicher Motors Ltd. and Dai Ichi Karkaria Ltd. “Such right cannot be taken away without express statutory authority. The GST framework is designed for the seamless flow of credit. Lapsing of cess balances would contradict this foundational principle,” reads the letter.

It has also requested the government to invoke transitional provisions under Section 172 or Section 164 of the CGST Act—or other suitable recourse—to permit the transfer of cess balances into IGST/CGST ledgers for utilisation against regular GST liabilities. With the festive season upon us, our members are extremely anxious. We respectfully urge your intervention on priority,” Vigneshwar appealed in his letter, while seeking an urgent meeting with the finance minister.