Impact of GST on Automobile Company & Dealers – GST Rates on Cars

Impact of GST on Automobile Industry: The Automobile Industry is one of the fastest growing sectors in India. The industry accounts for 7.1 per cent of the country’s Gross domestic Production (GDP).Almost 13% of the revenue from central excise is from this sector and claims a size of 4.3% of total exports from India. The Automobiles sector is four different segments which are as follows:

  • Two-wheelers which comprise of mopeds, scooters, motorcycles and electric two-wheelers
  • Passenger Vehicles which include passenger cars, utility vehicles and multi-purpose vehicles
  • Commercial Vehicles that are light and medium-heavy vehicles
  • Three Wheelers that are passenger carriers and goods carriers.

Impact of GST on Automobile Industry

Present Taxation System on Automobiles Company and dealer:

Under the present taxation system of indirect taxes, there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty etc.

There is good news for the importers/dealers as they would be able to claim the GST paid on goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT paid. Excise paid on stock transfer will be covered by IGST under the GST law. Advance received for supply of goods will also be taxed under GST. GST would help the manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under GST.

GST Rates on Automobiles Industry

GST Rates on Cars, Bikes, Trucks
Goods Old(%) GST(%) Difference(%)
Small car (Diesel) 31 31 0
Small car (Petrol) 30 29 -1
Mid-car (Petrol / Diesel) 44 43 -1
All types of SUVs 50 43 -7
Car, bus, truck, tire 31.5 28 -3.5
Hybrid Car 30.5 43 +12.5
Truck 27 28 +1
Bike 27 28 +1

Presently, sales of used cars attract VAT, and in some states, a composite rate and Excise/VAT are not applicable on advance received for supply of goods. Many states provide the Original Equipment Manufacturers (OEMs)/component makers with different investment-linked incentive schemes. The two main components of this scheme are subsidies and interest-free loans allied with VAT/CST payable on sale.

Impact of GST on Automobiles Company and dealer:

GST will be more beneficial for the people in the market for small family cars like Alto, Nano, Datsun Go, Santro as a minimum cess of 1% has been charged over and above the GST rate of 28%. Bikes which have an engine of greater than 350CC like Enfield 500CC or Harley Davidson etc would be charged GST at the rate of 28% and an additional 3% cess would be levied. It is difficult to understand the placement of yachts, aircraft, personal jets under the 3% cess bracket along with the small cars having engine >1200CC and <1500CC instead of the 15% cess.

GST Impact on Maruti Suzuki Cars

The country’s top automaker Maruti Suzuki India (MSI) cut prices of most of its models by up to 3 percent. It has cut the price of the Alto in the range of Rs 2,300 to Rs 5,400, the WagonR Rs 5,300-Rs 8,300 and that of the Swift between Rs 6,700 and Rs 10,700.

Maruti Suzuki India has also reduced the price of the top selling card Baleno in the range of Rs 6,600 and Rs 13,100 and that of the Dzire ranging between Rs 8,100 and Rs 15,100. Price of Ertiga petrol has been cut by up to Rs 21,800 while that of petrol powered Ciaz by up to Rs 23,400. The SUV Vitara Brezza has become cheaper by Rs 10,400-14,700, while the S-crossby Rs 17,700-21,300.

GST Impact on Toyota Kirloskar Motor

Toyota has been also reduced prices of all new Fortuner by up to Rs 2.17 lakh, Innova Crysta by up to Rs 98,500 and Corolla Altis by up to Rs 92,500, Platinum Etios by Rs 24,500 and that of Etios Liva by up to Rs 10,500.

GST Impact on Honda Cars India

The Honda Company alsp cut the prices of its models by up to Rs 1.31 lakh.

The Honda has cut price of its premium  hatchback Brio by up to Rs 12,279 and that of the compact sedan Amaze by up to Rs 14,825. It has slashed price of the Jazz by up to Rs 10,031 and that of its recently launched model WR-V by up to Rs 10,064.

The mid-sized sedan City has seen a reduction in the range of Rs 16,510 and Rs 28,005. The BR-V prices will come down by up to Rs 30,387.

The premium SUV CR-V has also seen a price drop of up to Rs 1,31,663.

GST Impact on Ford Cars

The Ford company has cut the prices by up to 4.5 percent. The steepest cut will be in Mumbai with the company’s flagship SUV Endeavour becoming cheaper by up to Rs 3 lakh.

In Delhi, the price of Figo has been cut by Rs 2,000, that of the compact SUV Ecosport by up to Rs 8,000, and the SUV Endeavour by up to Rs 1.5 lakh.

In Mumbai, the prices will go down in the range of Rs 28,000 on the Figo to Rs 3 lakh on the Endeavour.

GST Impact on TVS Motor

The two-wheeler major TVS Motor Company has reduced prices of its models by up to Rs 4,150 to hand down GST benefit to customers.

Other Impacts

Impact of tax: Under GST regime all the taxes like excise, sales tax, road tax, motor vehicle tax, registration tax etc will be subsumed by GST. In GST regime, Automobile dealers will collecting and paying CGST and SGST (i.e. Central GST and State GST on intra-state sale of vehicles. Further in case of interstate sale of the vehicles, they will be collecting and paying IGST).

Impact on Credits: Currently, automobile dealers are not able to avail CENVAT credit on the following indirect taxes paid by them:

  • CST Paid on purchase of vehicle, spares, consumables, accessories and assets.
  • Excise Duty paid on purchase of vehicles, spares, consumables and accessories.
  • NCCD (National calamity contingent duty), Auto Cess and Infrastructure Cess paid on purchase of vehicles.
  • CVD paid on any imported Spares, accessories and consumables.
  • SBC (Swachh Bharat cess) paid on input services.
  • Reversal of proportionate CENVAT credit of service tax due to trading activity – Showroom Rent, Advertisement expenses etc. In GST Regime, all the above duties/ taxes will get subsumed, therefore dealers should be able to avail the input tax credit of all its procurements of goods/ services except for few restrictions laid in the GST Law.

Dealer Incentive Schemes: Currently, dealer incentive schemes are not subject to VAT, but there are issues on applicability of service tax on dealers, depending on the terms of each scheme. The industry view that these schemes are not an independent service by dealers to the manufacturers, but are in the nature of post-sale discounts. The GST law does not provide as to whether these incentives or discounts are subject to GST or not.

Further, since the original supply would have already suffered GST and the buyer would have taken the input tax credit, the issue of whether these incentives/ discounts would impact the price and credits, or will these be kept out of GST, needs to be addressed. Further, in case such schemes are subject to GST, whether the same would be treated as a service or goods is also another aspect that needs to be clarified.

Lack of clarity on MOU incentives – The investments by automobile companies are significant and have multiplier effect on the State’s economy. Generally, States provide for various incentives including Investment Promotion Subsidies (IPS). A majority of the automobile manufacturers enjoy special benefits from the State Government in the form of State Investment Promotion Subsidies (IPS). This is given in the form of refund of VAT/ CST paid, or as a loan.

With the introduction of GST, taxes move from the Origin State to the Consumption State. This would result in significant reduction of flowback of IPS, since GST on inter-state sales is not credited to the Origin State. While this issue does not strictly arise under the GST law, the shift in the place of supply significantly impacts the IPS. Unless there is a compensation mechanism to the States with regard to the impact on the IPS due to GST. The effect on project viability for some of the mega automobile projects would be severe.

Lake of Clarity on subsuming of cess: The automotive industry has witnessed several cesses, including automobile cess, NCCD, tractor cess and infrastructure cess. In the discussions on GST, the Government has indicated its intention to subsume all Central and State cesses into GST. However, on a reading of the GST law and the constitutional amendment bill, it is not clear as to whether the cesses levied under different legislations will be subsumed into GST or would continue under the GST scenario.

Time of supply for payment: Currently, under the excise law, duty is paid at the time of removal of the vehicles manufactured. VAT is paid at the time of sale of vehicles. The GST law specifies that the time of supply of goods shall be at the earliest of the following dates: Date of removal of goods, Date of which goods are made available to recipient, Date of invoice, Date of receipt of payment with respect to the supply, Date of receipt of goods as shown in the books of accounts by recipient. Under the existing law, receipt of advance towards supply of goods is not a taxable event, both under central excise and VAT law.

However, under the GST Law, receipt of advance is sought to be treated as a taxable event. Considering the practice of ‘cash & carry’ followed by vehicle manufacturers and also the dealer network following advance for supply with its customers, the change in the timing of supply would result in significant changes in the cash flow, and also procedural changes for manufacturers and dealers. The industry would also need to consider that there could be more than one GST invoice for the supply of vehicles. This has to be factored along with the procedure followed by various State Regional Transport Office (RTO) to avoid any hassles in relation to registration of vehicles.

Job work – The job work process is the backbone for automobile industry operations. The GST law treats ‘job work’ as a service and non-taxability of job work transaction and providing credits to the principal for supplies to job worker, However, some more clarity is needed in the conceptual framework for job work else will pose a challenge.

Key Points:

  • Dealers/Automobiles Company should able to avail input tax credit of various taxes, which is not available in present tax structure.
  • Confusion regarding dealer incentive scheme taxable or not.
  • Advance received shall be treated as sale and GST will be charged.
  • Remove cascading Effect.
  • Compliance cost increase.
  • On-road price of vehicles will be drop by around 8% as per experts.

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