Carmakers Face Rs 10,000 Crore GST Compensation Cess Notices for Utility Vehicles

Several top automakers, including Mahindra, Tata Motors, Hyundai, and Maruti, have received tax notices for unpaid compensation cess on utility vehicles sold before 2022. The total liability for the automotive industry is estimated to be around ₹10,000 crore. These notices were issued by CGST offices across various jurisdictions. The issue stems from a clarification by the GST Council in July 2022, which stated that the compensation cess applies to all utility vehicles. The clarification was further elaborated in December 2022, specifying that the tax and cess 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. Legal experts believe these notices may face challenges on constitutional grounds, as they could be considered arbitrary and result in unreasonable tax demands for the period before the clarification. The outcome of this dispute will significantly impact automakers’ financials due to the unrecoverable cess.