Tax notices have been issued by the central government for Rs 10,000 crore to the automobile manufacturers for ‘failing to pay the compensation cess’ under the Goods and Services Tax (GST) on utility vehicles.
The taxes relate to utility vehicles sold before 2022 and consist of popular models like Mahindra’s Thar and Scorpio, Tata Motors’ Safari and Harrier, Hyundai’s Creta, and Maruti’s Brezza.
Dispute Surrounding SUV Cess
For alleged non-payment of the SUV sales cess the GST authorities have sent the notices between financial years 2018 and 2022. Answering that the automakers filed a plea in August with the GST Commissionerate specifying the confusion for how the cess laws were analyzed in the period.
The major crux revolves around the definition of SUVs, particularly whether the ground clearance must be computed when the vehicle is ‘laden’ or ‘unladen’. Laden ground clearance is the distance between the lowest part of the body of the vehicle or chassis and the road when the passengers and cargo are carried by the vehicle. As per the manufacturers till July 2023 no clarity is been furnished on the same case.
Industry Reaction
It was specified by the GST council in July 2022 that the cess shall be applicable before all utility vehicles. Thereafter in December 2022, it is been cited that the tax and cess shall apply to all SUVs with an engine capacity of more than 1500 cc, a length greater than 4 meters, and a ground clearance of at least 170 mm.
Applying these clarifications retroactively may create considerable difficulties for manufacturers who can’t recover the extra indirect taxes from their customers.
On this matter, the Society of Indian Automobile Manufacturers (SIAM) has requested intervention from the Ministry of Finance. Before that Finance Minister Nirmala Sitharaman defended the levying of the cess, citing that the law was merely specified not revised in 2022.
Currently, SUVs having engine capacities of more than 1500 cc, lengths greater than 4,000 mm, and ground clearance above 170 mm shall be imposed a 28% GST rate including a 22% compensation cess.
