FADA Approaches Supreme Court Over ₹2,500 Crore Compensation Cess Loss

FADA Approaches Supreme Court Over ₹2,500 Crore Compensation Cess Loss

Issue: Whether the Central Government is legally liable to provide compensation or allow a grace period for automobile dealers to offset the substantial inventory loss—estimated at ₹2,500 crore—incurred due to the sudden implementation of Goods and Services Tax (GST) rate cuts (GST 2.0) and the cessation of the GST Compensation Cess.

Facts:

• The GST 2.0 reforms, effective September 22, 2025, included deep rate cuts on various vehicle categories (e.g., small cars and two-wheelers) and simultaneously ended the Compensation Cess.
• Automobile dealers held large inventory stocks that were purchased from manufacturers with the higher pre-GST 2.0 tax rates and Cess already paid.
• The immediate implementation of the lower rates forced dealers to sell this inventory at the new, reduced Maximum Retail Prices (MRP) to compete, leading to a massive inventory devaluation loss of approximately ₹2,500 crore.
• FADA filed a petition before the Supreme Court seeking judicial relief or a direction to the government for compensation to cover this loss.

Decision:

(The outcome of the Supreme Court hearing on FADA’s petition is not provided in the snippet, but the article focuses on the action taken.)

FADA formally approached the Supreme Court of India by filing a writ petition seeking a direction to the Central Government to compensate or provide a mechanism to alleviate the ₹2,500 crore financial loss suffered by its members due to the abrupt tax transition.

Key TakeDowns:

• Inventory Devaluation Loss: The primary financial impact was the huge loss suffered by dealers on pre-existing inventory that suddenly lost value overnight due to the sharp reduction in the effective tax rate (GST + Cess).
• Failure of Transition Mechanism: The petition highlights the failure of the government to implement adequate transition provisions or a mechanism (like a stock clearance window or full tax credit refund) to protect dealers from this massive devaluation loss during a major tax structure change.
• Judicial Intervention Sought: By approaching the Supreme Court, FADA seeks to protect its members from being forced to bear the cost of a Central Government policy decision, arguing that the loss was involuntary and systemic.