Supreme Court takes up FADA petition on ₹2,500 crore blocked cess credits

The Supreme Court of India has admitted a petition filed by the Federation of Automobile Dealers Associations (FADA) seeking relief over blocked compensation cess credits worth more than ₹2,500 crore following the rollout of GST 2.0.

The court has issued notice to the Central government and scheduled the next hearing in the matter for March 25, 2026.

The petition relates to vehicle inventory that dealers had purchased before the implementation of GST 2.0. At the time of purchase, dealers had paid both GST and compensation cess on these vehicles.

After GST 2.0 came into effect, compensation cess was removed, and GST rates were reduced on several vehicle categories. As a result, dealers are now unable to utilise the cess credits that had accumulated on vehicles bought under the earlier tax structure.

According to FADA, the blocked credits amount to more than ₹2,500 crore across the dealer network.

The association says the situation has created working capital pressure for dealerships, particularly smaller businesses operating as MSMEs. FADA has asked for a transitional mechanism that would allow unused compensation cess balances to be adjusted against other GST liabilities.

The ₹2,500 crore in blocked credits has effectively locked up funds that would otherwise be used for day-to-day operations. Dealer bodies warn that if the credits are ultimately written off, the financial hit could force some smaller dealerships to scale down operations or shut, with potential job losses across the retail network.

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