Carmakers have received tax notices for not paying compensation cess, which is levied on goods and services tax (GST), on utility vehicles. “CGST offices across various jurisdictions have sent these notices to the auto majors. In all, the industry is liable to pay about ₹10,000 crore,” a source told CNBC-TV18.
These dues pertain to vehicles sold before 2022. “Auto companies association met with revenue secretary Sanjay Malhotra in early October, seeking relief from these GST notices,” sources said.
However, the government has decided to stick to its guns. Utility vehicles are subject to a 28% GST, and a compensation of 22% on the GST.
In July 2022, the GST Council clarified that the cess will be applicable on all utility vehicles. Later on in December 2022, the Council further explained that the same tax and cess will be applicable for all SUVs with an engine capacity of 1,500 cc or more, those longer than 4 metres, and a ground clearance of 170 millimetres.
“The 2022 clarification which leads to the show cause notices today makes such a clarification retroactive and would certainly be detrimental as the indirect tax burden cannot be now recovered from the consumers and will directly impact the companies”, said Abhishek A Rastogi, founder of Rastogi Chambers.
“These clarifications will have to cross the test of constitutional validity on the grounds of being manifestly arbitrary and resulting in absurd demands by way of these show cause notices issued for the period prior to issuance of such a clarification”, added Rastogi.
Finance Minister Nirmala Sitharaman justified the imposition of the cess on SUVs saying that the law was only clarified, not changed, in 2022.
Sanjay Chhabria, IDT lead at Nexdigm says, “The question of whether the amendment was clarificatory in nature (calling for retrospective application) or whether the ambit of the levy was widened for the first time to cover all other utility vehicles meeting the prescribed specifications / parameters, will have to be tested before the Courts of law.”
“However, one must bear in mind the cardinal rule of interpretation that unless explicitly stated, a piece of legislation is presumed not to be intended to have a retrospective operation. The idea behind such a rule is that a current law should govern current activities.”
Retrospective legislation is contrary to the principle that legislation introduced for the first time need not change the character of past transactions carried out in reliance on the then-existing law, Chhabria said. He added that the doctrine of fairness is a relevant factor when construing a statute.
“In the interest of all the stakeholders, the GST Council could regularize this issue on ‘as is, where is’ basis given the genuine doubts on the Compensation Cess rate applicable prior to July 2023 – whether 20% or 22%.”
Source: CNBC TV18
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