No Cess on OEM Inventory Stock Transfers: GST 2.0 Is About Price Reduction

𝐍𝐨 𝐂𝐞𝐬𝐬 𝐨𝐧 𝐎𝐄𝐌 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐒𝐭𝐨𝐜𝐤 𝐓𝐫𝐚𝐧𝐬𝐟𝐞𝐫𝐬: 𝐆𝐒𝐓 𝟐.𝟎 𝐈𝐬 𝐀𝐛𝐨𝐮𝐭 𝐏𝐫𝐢𝐜𝐞 𝐑𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧

With GST 2.0, the compensation cess on motor vehicles has been discontinued, raising a key concern: the accumulated cess paid on vehicles lying in OEM stockyards becomes an unrecoverable cost since it is no longer refundable or creditable.

Why was the cess paid initially? Transfers from OEM factories to their own stockyards are treated as “deemed supplies” under GST law.

Cess was always meant to be a levy on actual consumer transactions or genuine commercial dealings not on internal stock transfers within the same entity.

It is important to note that stock lying within OEM premises does not attract any compensation cess as it is internal inventory. Similarly, the inventory lying at stockyards is also OEM-owned and essentially part of the same inventory pool. 𝐓𝐡𝐞𝐫𝐞𝐟𝐨𝐫𝐞, 𝐭𝐡𝐞 𝐬𝐚𝐦𝐞 𝐩𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞 𝐬𝐡𝐨𝐮𝐥𝐝 𝐚𝐩𝐩𝐥𝐲.

Furthermore, once the cess is discontinued, any cess paid on stock lying at stockyards by default becomes excess cess paid under section 34 and stands refundable.

Technically, Section 8 of the Compensation Cess Act mandates cess on supplies effected under CGST Act.

A sound interpretation could be that Section 8 of the Compensation Cess Act 𝐚𝐩𝐩𝐥𝐢𝐞𝐬 𝐨𝐧𝐥𝐲 𝐭𝐨 𝐚𝐜𝐭𝐮𝐚𝐥 𝐬𝐮𝐩𝐩𝐥𝐢𝐞𝐬 𝐟𝐨𝐫 𝐜𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐚𝐭𝐢𝐨𝐧, 𝐧𝐨𝐭 𝐝𝐞𝐞𝐦𝐞𝐝 𝐬𝐮𝐩𝐩𝐥𝐢𝐞𝐬 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐜𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐚𝐭𝐢𝐨𝐧 𝐥𝐢𝐤𝐞 𝐢𝐧𝐭𝐫𝐚-𝐞𝐧𝐭𝐢𝐭𝐲 𝐬𝐭𝐨𝐜𝐤 𝐦𝐨𝐯𝐞𝐦𝐞𝐧𝐭𝐬. Notably, deeming provisions have a limited scope and should not be stretched beyond their intended purpose.

This aligns with the principle that taxation should focus on real economic transactions and consumption.

This issue deserves thoughtful attention as GST 2.0 reshapes the tax landscape. Clarity here will translate into lower prices and direct benefits for consumers

Book: Historical Rates Reform in GST 2.0