INPUT TAX CREDIT IN GST FOR FLAWLESS CREDIT OR A MECHANISM OF

FLAW – A CASE STUDY ON AUTOMOBILE SECTOR

Sudhansu Sekhar Panda 1

Prasanna Kumar Sahoo 2

Dibyajyoti Nayak 3

ABSTRACT:

The implementation of Goods and Services Tax from 1st July, 2017 has been a very
significant step in the history of indirect tax reforms in India. By amalgamating a large
number of Central and State taxes into a single tax, the aim was to mitigate cascading effect
of double taxation and pave the way for a common national market. GST operates by levying
tax on value of goods and/or services supplied by vendors at each stage in transaction chain and
allowing credit of input tax paid by such vendors on procurement of goods and/or services for
business or profession. Today mostly Automobile exporters in India are in worrisome which is one of
the largest markets in the world contributing around 7 % of the country's GDP because of
the current GST scheme of making payments upfront and improper working of claiming of input tax credit
refund. Currently there are host of indirect taxes applicable on the products and various allied
services rendered by this industry. Like, Excise on manufacturing on cars and spare parts,
VAT on Sale and service Tax on rendering associated services like servicing and repair work.
GST, a comprehensive indirect tax on goods and services, is all set to subsume host of
indirect taxes, it becomes extremely important for businesses in this sector to understand the
impact of GST on various operations and process. So the impact of GST on the Indian
automobile market is going to be manifold. This paper focuses on basic concepts and framework
of Input Tax Credit under GST regime and attempts to study the implementation of ITC on
automobile industry in India.

1 M.com, M.Phil, UGC NET, Ph.D. Research Scholar, P.G. Department of Commerce,
Utkal University,Bhubaneswar,Mobile-+919438082311,Email: pandabls555@gmail.com
2
M.Com, UGC-NET, M.Phil Scholar, P.G. Department of Commerce, Utkal University,
Bhubaneswar, Mobile+919178038596, Email:prasannakumarsahoo96@gmail.com
3
M.Com,M.Phil Scholar, P.G. Department of Commerce, Utkal University,
Bhubaneswar, Mobile+919124631802, Email: dibyayoti Nayak22@gmail.com
Keywords: Goods and Service Tax, Input Tax Credit, Automobile Sector, Cascading Effect

INTRODUCTION
GST is nothing but a value added tax on goods & services combined. One of the most fundamental
features of GST is seamless flow of input tax credit across the transaction chain throughout the nation
irrespective of State borders. It is these provisions of Input Tax Credit that makes GST a value added
tax i.e., collection of tax at all points after allowing credit for the inputs. A well designed Input Tax
Credit Scheme (ITC) is important pillar to minimise cascading effect of double taxation.
Cascading of taxes, in simple language, is ‘tax on tax’. Under the past system of taxation, credit of
taxes being levied by Central Government is not available as set-off for payment of taxes levied by
State Governments, and vice versa. One of the most important features of the GST system is that the
entire supply chain would be subject to GST to be levied by Central and State Government
concurrently. As the tax charged by the Central or the State Governments would be part of the same
tax regime, the credit of tax paid at every stage would be available as set-off for payment of tax at
every subsequent stage.

One of the biggest advantages expected from the implementation of GST Act is that it would remove
cascading effect by facilitating seamless flow of credit. This would be given effect by providing for
the availment of ITC to the purchasing dealer in respect of the GST paid by the supplying dealer and
thus by removing the restrictions placed in the present CENVAT credit rules on availment of credit
which lead to break in the credit chain and consequent cascading effect which further leads to increase
in cost of goods and services. So the procedures and restrictions laid down in these provisions are
important to make sure that there is seamless flow of credit in the whole scheme of transition without
any misuse. Thus, the clarity of rules of availment and utilization will have significant impact on
making GST a taxpayer-friendly tax.

REVIEW OF LITERATURE
K.Neelavathi, Mrs Rachana Sharma(2017,“Impact of GST on Automobile Industry”)
IOSR Journal of Business and Management (IOSR-JBM) on:The study concluded that
automobile industry can become one of the important contributor for the economic
development of the country as well as it help in increasing the employment opportunity. They
were successfully able to analyze different tax rate levied on vehicles during pre and post
GST periods.
Tarunika Jain Agrawal & C.A. Aashna Goyal(2017,”Impactof GST On Real Estate And
Automobiles Sector”) International Journal of Research in Business Management, Volume
5.The study suggests that the real estate and automobile sector cangain from GST if they are
properlyequipped for the transformations in the business environment.

Mr.S.DKharde: (2017,“Impact Of GST On Indian Automobile Industry”), International

Journal of Emerging Technologies and Innovative Research,volume:4.The paper covered the
overall impact of GST on automobile sectors in India and made comparative studies between
pre tax policy and GST policy on automobile industry. Author also concluded on GST impact
on the economic development of the country.

RESEARCH METHODOLOGY
Exploratory research has been implemented and the paper is based on secondary data. The
paper is based on extant literature and internet sources have been used. The various articles,
researches, government reports, newspapers, magazines, various websites and the
information on internet have been studied.

OBJECTIVES OF THE STUDY

1. To cognize the concept of ITC in GST
2. To study the implementation of ITC under GST on automobile industry in India
Input Tax Credit
Input tax is a charge on the supplies of inputs i.e., raw materials. It is imposed by the
government on the person who receives such supplies of goods and services for business
purpose.Thus, ITC will be available to the supplier on the goods/services he intends to give
for external supplies (for business purpose only). It does not include capital goods, i.e., goods
used for producing other goods and not the ones which are sold directly to the customer.
GST is a single tax on the supply of goods and services, right from the manufacturer to the
consumer. Credits of input taxes paid at each stage will be available in the subsequent stage
of value addition, which makes GST essentially a tax only on value addition at each stage.
The final consumer will thus bear only the GST charged by the last dealer in the supply
chain, with set-off benefits at all the previous stages.
Input –Any goods other than capital goods used/intended to be used by a supplier for business
purpose

Input Tax – IGST/CGST/SGST/UGST charged on supply of goods/services to a person and includes

tax payable on imports and under reverse charge mechanism but excludes tax paid under composition
scheme
Capital Goods – capital goods mean goods, the value of which is capitalised in the books of accounts
of the person claiming the credit and which are used/intended to be used for business purpose

ELIGIBILITY CRITERIA
Businesses need to adhere to the following rules to claim input tax credit.
 The buyer must possess a valid tax invoice, debit note, or other prescribed document
issued by a registered dealer.
 The buyer must have received the good or service. If the product is being received in
instalments, then the credit can be claimed against the tax invoice for the last instalment.
 The supplier must have paid the tax due on the buyer’s purchases to the government
either in cash or by claiming input tax credit.
 Finally, the supplier must have filed GST returns. The most unique and unprecedented
change GST brings to this entire tax setup is that you are allowed to claim input tax
credit on your purchases only if your supplier is GST compliant and has paid the tax they
had collected from you.
 To claim ITC, the buyer should pay the supplier for the supplies received (inclusive of
tax) within 180 days from the date of issuing the invoice. If the buyer fails to do so, the
amount of credit they would have availed, will be added to their output tax
liability. Once the buyer pays the amount due to the supplier by the taxpayer, they will
be able to avail ITC. In case of partial payment, credits proportionate to the payment can
be availed.
 Motor vehicles used to transport people (seating capacity of more than thirteen
including driver), vessels and aircrafts, and money for or by a banking company or
financial institution.
 General insurance, repair and maintenance with respect to motor vehicles, vessels and
aircrafts.
 Goods or services that are mandatory for an employer to provide to their employees,
under any law.
ITEMS ON WHICH CREDIT IS NOT ALLOWED
 Motor Vehicles or Conveyances:- Input tax credit can be claimed for motor vehicles
or conveyance only when they are used for making a further supply of such vehicles
or conveyances or transportation of passengers or imparting training or for
transportation of goods. Hence, expenses related to the normal use of motor vehicles
for office purposes cannot be claimed as an input tax credit.
 Food, Beverages and Outdoor Catering:- Expenses relating to food, beverages and
outdoor catering can be claimed as input tax credit only when inward supply of goods
or services or both of a particular category is used by a registered person for making
an outward taxable supply of the same category of goods or services or both or as an
element of a taxable composite or mixed supply. Hence, regular taxpayers would not
be eligible for claiming input tax credit on expenses relating to food, beverages and
catering.
 Beauty Treatment, Health Services & Cosmetic and Plastic Surgery:- Beauty
treatment, health services, cosmetic and plastic surgery related expenses cannot be
claimed as input except when inward supply of goods or services or both of a
particular category is used by a registered person for making an outward taxable
supply of the same category of goods or services or as an element of a taxable
composite or mixed supply. Similarly, expenses relating to membership of a club,
health and fitness centre is not eligible for input tax credit.
 Life and Health Insurance:- Expenses relating to rent-a-cab facilities, life or health
insurance can be claimed as input tax credit only when the Government notifies it as
services which are obligatory for an employer to provide to its employees under law.
Else, to claim input tax credit, the inward supply must have been used for making an
outward taxable supply of the same category or as part of a taxable mixed supply.
 Travel Benefits for Employees:- Travel benefits extended to employees on vacation
such as leave or home travel concession cannot be claimed as input tax credit.
 Works Contract Services:- Works contract services, when supplied for construction
of an immovable property (other than plant and machinery), cannot be claimed as
input tax credit. However, work contract services can be claimed as an input tax credit
when it is an input service for the further supply of works contract service.
 Construction of Immovable Property:- Goods or services received by a taxable
person for construction of an immovable property (other than plant or machinery) on
his own account or even when it’s used in the course or furtherance of business
cannot be claimed as input tax credit. Under GST Act, construction includes re-
construction, renovation, additions or alterations or repairs.
 Non-Resident Taxable Person: Goods or services received by a non-resident taxable
person except on goods imported by him is not eligible for input tax credit.
  Personal Consumption:- Goods or services used for personal consumption is not
eligible for input tax credit.
 Lost or Stolen or Damaged Goods:- Input tax credit is not available for goods lost,
stolen, destroyed, written off or disposed of by way of gift or free samples.
 Composition Supply:- Goods or services or both on which tax has been paid under
the Composition Scheme will not be eligible for input tax credit. Also tax paid as
interest, penalty or fine will not be eligilbe for input tax credit
APPORTIONMENT OF INPUT TAX CREDIT
ITC shall be apportioned in following cases:
 Apportionment of credit when goods or services used for both business and
other purposes: Where the goods or services or both are used by the registered
person partly for the purpose of any business and partly for other purposes, the
amount of credit shall be restricted to so much of the input tax as is attributable to the
purposes of his business.
 Apportionment of credit when goods or services used for supplies including
zero-rated supplies and exempt supplies [Section 17(2)]: Where the goods or
services or both are used by the registered person partly for effecting taxable supplies
including zero-rated supplies under this Act or under the Integrated Goods and
Services Tax Act and partly for effecting exempt supplies under the said Acts, the
amount of credit shall be restricted to so much of the input tax as is attributable to the
said taxable supplies including zero-rated supplies.
 Valuation of Exempt Supply:(3) The value of exempt supply shall be such as may
be prescribed, and shall include supplies on which the recipient is liable to pay tax on
reverse charge basis, transactions in securities, sale of land and, subject to clause (b)
of paragraph 5 of Schedule II, sale of building.
 Option to banking company either to follow apportionment method or avail
only 50% of eligible credit (4) A banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of
accepting deposits, extending loans or advances shall have the option to either
comply with the provisions of sub-section (2), or avail of, every month, an amount
equal to fifty per cent of the eligible input tax credit on inputs, capital goods and
input services in that month and the rest shall lapse:
  Option once exercised could be changed in next financial year: Provided that the
option once exercised shall not be withdrawn during the remaining part of the
financial year:
 Restriction of only 50% of eligible credit not applicable on inter-branch
supplies: Provided further that the restriction of fifty per cent shall not apply to the
tax paid on supplies made by one registered person to another registered person
having the same Permanent Account Number.
VAT vs GST
The table below will clear the difference between ITC under VAT and GST. This shall enable
us to understand the pre and post GST scenario with respect to ITC.
Input Tax Credit under VAT Input Tax Credit under GST
It is origin-based. It is consumption-based.
Levying of multiple taxes (such as excise duty, All such diverse taxes have been done
VAT, sales tax, entry tax, purchase tax) away with. Only a standard GST will be
applicable based on the type of
goods/services.
Tax was levied at each stage at different rates Tax will be collected at each stage but
on the full value added price of the product simultaneously the tax paid at previous
stage can be set off.
It leads to double taxation resulting in an It will allow smooth and uninterrupted
overall enhanced price of the product. flow of input credit in the supply chain and
prevent “cascading of tax” or “tax on tax”
or simply “double taxation” activity.

Pre-GST scenario:
A manufacturer buys raw material costing Rs. 100. This Rs. 100 includes both his cost and
profit. Now he would add tax at 10% i.e., Rs.10 so that total cost prices for wholesaler be Rs.
110. Now the wholesaler would Rs. 40 as his profit that amounts to Rs. 150.
After this, the wholesaler would add tax at 10%, making Rs. 165 as the cost for the retailer.
Further, Rs. 165 calculated above will be the cost price for the retailer. The retailer will add
Rs. 35 as his profit and it would amount to Rs. 200 (cost price plus profit of retailer).
Now the retailer would add 10% as tax on Rs. 200 i.e., Rs. 20. The consumer will finally pay
Rs. 220. Here the respective tax paid by all parties is Rs. 10 (manufacturer) + Rs. 15
(wholesaler) + Rs. 20 (retailer), amounting to total tax of Rs. 45 which is borne by the
customer.
Post-GST scenario:
Manufacturer buys raw material costing Rs. 100. This Rs. 100 includes both
his cost and profit,. He would then add tax at 10% i.e., Rs. 10 making the total
cost Rs. 110.
Now under GST, the wholesaler would purchase the material at sale price (and not the
invoice price). Accordingly he will add the profit and taxes on that sale price.
This means that on purchase of goods worth Rs. 100, he will add profit of Rs. 40, amounting
to Rs. 140. On this he would add tax at 10%, making the price as Rs. 154. It appears that the
tax paid by wholesaler is Rs. 14 when in fact, the manufacturer had already paid Rs. 10.
Therefore the tax liability for manufacturer would be Rs. 14- Rs. 10 i.e., Rs. 4.
Similarly, now the cost price for retailer would be the sale price of the wholesaler i.e., Rs,
140 (and not Rs. 154).
Let’s assume the retailer marks up the price by Rs. 35, amounting to the sale price of Rs. 175.
On this, after adding 10% tax, the price would be 175 plus 17.5 which is equal to 192.5.
Here it appears that tax paid by retailer is Rs. 17.5 but actually manufacturer already paid Rs.
10 and wholesaler already paid Rs. 4.
So, actual tax liability for retailer would be Rs. 17.5- Rs. 10- Rs. 4 = Rs. 3.5. Here, the
respective tax paid by all parties, is Rs. 10 (manufacturer) + Rs. 4(wholesaler) + Rs. 3.5
(retailer) amounting to total tax of Rs. 17.5.
A comparison with the above scenario shows that the tax liability is reduced from Rs. 45 to
Rs. 17.5
This reduces the overall price for customer and tax liability for each party in the supply-
chain.
Examples where credit of motor vehicles can be availed: Dealer of vehicles, cab providers,
trucks/vehicles used by factories for transportation of goods.

It is important to understand that there is nothing mentioned about whether the credit would
be available on purchase of motor vehicle. Since, the act provides that the credit is not
available on motor vehicles it can be concluded that all input tax credit in relation to motor
vehicle cannot be claimed except used in the supplies as mentioned above.
 1. Input tax credit cannot be denied in case the motor vehicles are being used by the
business entities for transport of its raw-material, semi-finished goods, final produce
and/or capital goods like plant & machinery, spares, stores and/or fuel; and
2. Input tax credit even cannot be denied in the case where the business entities use the
vehicle for transport of its staff or workers on chargeable basis.

AUTOMOBILE INDUSTRY IN INDIA

Automobile industry in India is one of the most successful and emerging manufacturing
industry post liberalization. The industry accounts for 7.1 per cent of the country's Gross
Domestic Product (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 industry has potential to grow and
become a major contributor for the economic development and employment creation but now
the Industry is coping up with the GST regime as the government is very cautious particularly
for this sector. The GST subsumes almost all the taxes under its ambit like excise, VAT, sales
tax, road tax, motor vehicle tax, registration duty which will further benefit the procedural
ways of the automobile industry. Apart from the high tax rates, industry has seen extensive
litigations on VAT v/s Service Tax tussle, valuation issues in case of PDI charges, warranties,
taxation on handling charges and many more. Thus, introduction of GST shall be a breather
for this sector wherein taxes on vehicle are 28% in GST regime along with the cess of 1%
and 15%.However, this rate of taxation will be beneficial for this industry as full set-off of
credits will be made available in the GST regime. Further, as per the Goods and Services
(Compensation to States) Act, 2017, the compensation cess can be availed as credit and the
same can be utilized against the payment of compensation cess in the same manner as per the
rules applicable for input tax credit.
IMPACT OF INPUT TAX CREDIT
Under Current Indirect tax regime, on sale of vehicles, spares and accessories, the following duties
and taxes are applicable:
• Central Excise Duty and Additional Excise Duty
• Infrastructure Cess : On sale of Vehicle
• CVD and Additional Import Duty : Import of spares and accessories
• VAT/CST : VAT on intra State sales and CST on Interstate sales

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, Auto Cess and Infrastructure Cess paid on purchase of vehicles;
 CVD paid on any imported Spares, accessories and consumables;
 SBC paid on input services;
 Reversal of proportionate CENVAT credit of service tax due to trading activity
 Showroom Rent, Advertisement expenses etc.
Thus, the business are forced to add this as a product cost and this in turn leads to cascading effect and
increase in the product price. In GST Regime, all the above duties/ taxes will get subsumed, therefore
it allows seamless availability of input tax credit across supply chain- Right from Manufacturer till it
reaches final consumer and across the State borders. This eliminates the cascading effect of taxes in
the supply chain and as a result, the product will be cost effective. This reduction of product cost will
lead to reduced price, increased demand and therefore, contribute to the growth of the business in this
sector.
Bottom line Impact
Under Current regime, taxes paid by an automobile manufacturer or dealer on business overhead like
advertising services, business promotion etc. are not allowed as Input tax credit. Under GST, with the
introduction of business concept “Used or intended to be used in the course or furtherance of
business" the business can claim input tax credit on business overheads. This will help the business in
reducing the cost of operation and increasing the profitability.
Impact on Transitional Credits: To transfer the existing credits in the GST regime, condition has
been kept that such credit must have been admissible in the GST regime. Therefore, dealers should be
able to transfer the following credits to the GST regime:
Credit of Service Tax: The same must be properly reflected in the last service tax returns with
proper reflection of the same in form TRAN-1 to establish the claim. Further, service tax credit
pertaining to cars, spares in stock can also be availed.
Excise Duty/ CVD: Since, currently dealers are not availing the credit of excise duty & CVD.
Therefore, they need to ascertain the value of stock as on the appointed day and based on the
availability of the invoice, credit can be availed. Further, even if proper excise invoice is not available
with the dealer, still a 60% of the CGST portion paid on outward supplies can be availed as credits as
per the scheme provided in this regard. Further, the facility of Credit Transfer Document where value
of goods is more than rupees 25000 per piece and bear the brand name of the manufacturer and are
separately identifiable then manufacturer can transfer the credit of excise duty to dealers based on the
‘credit transfer document’ and a dealer can avail full credit of excise duty under the cover of such
document. However, such document must be obtained within 30 days from the appointed date.
Therefore, dealers must avail full advantage of this beneficial piece of legislation extended by the
government.
VAT/SAD: Similarly, if a dealer is not availing the credit of VAT/SAD currently due to restriction
in the state VAT law, then credit can be availed based on the ascertainment of stock as on appointed
day. However, if the credit of VAT is being currently availed then the same needs to be properly
reflected in the last VAT return to transfer such credits to the GST regime.
Credit of CST: The same cannot be availed based on the stock availability as on the appointed day.
Entry Tax: Credit of same can be availed subject to possession of appropriate documents for the
same in states where such set off is permissible.
Impact due to Anti-Profiteering Measures: Since, a dealer will be able to take the credit of
goods lying in stock, the tax cost would decrease. This additional benefit accruing to a dealer is
expected to be passed on to the end consumer by way of reduction in prices of goods and services.
Further, a separate authority will be formed in the GST regime to monitor the non-compliance of the
anti-profiteering matters. This measure will have an adverse impact on the entire industry especially
when the pricing is pre-decided by the manufacturer and is a dynamic feature being guided by
multiple other factors. It is also pertinent to note that presently dealers work on a very thin margins
and their survival is purely on the volumes of business and in this scenario any further reduction in
prices could have negative impact. However, if the benefit is passed on by the manufacturer to the
dealers then this may not be as challenging also. It is already being observed that many large players
in the industry have reduced prices of various models of their products in July 2017.

ANALYSIS AND INTERPRETATION

This part envisages the analysis and interpretation of Data of automobile industry to find out
the impact of tax rates under both Pre GST regime and Post GST regime.

Tax Rate in Commercial Automobile Segment

Segment Pre-GST Post- GST Change

Three wheelers 33% 28% -5%

Minibus 28% 28%+15% cess 15%

Tractors 18% 18% No change

Table- Tax rates on Motor Vehicles under Pre-GST regime

Pre-GST
Excise VAT CST Infrastructure Total
Duty Cess
Small cars 12.5% 13.5% 2 1% 30.2%
(<1200cc)
Mid-size cars 24% 13.5% 2 4 43.5%
(1200cc-1500cc)
Luxury cars 27% 13.5% 2 4 46.5%
(>1500cc)
SUVs (Sport utility vehicles) 30% 13.5% 2 5 50.5%
(>1500cc)
Hybrids 12.5% 13.5% 1 4 31%
Electric 6% 13.5% 1 No 20.5%
 Table- Tax rates on Motor Vehicles under post- GST regime
Segment Post-GST
CGST SGST CESS Effective
GST
Small cars 14% 14% 1% 29%
(<1200cc)
Mid-size cars 14% 14% 15% 43%
(1200cc-1500cc)
Luxury cars 14% 14% 15% 43%
(>1500cc)
SUVs (Sport utility vehicles) 14% 14% 15% 43%
(>1500cc)
Hybrids 14% 14% 15% 43%
Electric 6% 6% 0% 12%

Table - Difference between Pre-GST and Post-GST

Segment Pre-GST Post-GST Change
Small cars 30.2% 29% -1.2%
(<1200cc)
Mid-size cars 43.5% 43% -0.5%
(1200cc-1500cc)
Luxury cars 46.5% 43% -3.5
(>1500cc)
SUVs (Sport utility vehicles) 50.5% 43% -7.5%
(>1500cc)
Hybrids 31% 43% 12%
Electric 20.5% 12% -8.5%

The analysis and interpretation can be summarised as below;

 The demand for hybrid model car has been adversely impacted since these are attracting 43
percent duties under GST. The hybrid companies plan to limit the production of these models
and refrain from launching this model as 43% GST rate has made production unviable.
Hybrid could have offered the logical stepping stone towards the green technology. These
segment of cars would be affected pretty badly because this is the only segment which would
see a price increase in post GST implementation. High tax rates being levied on these hybrids
sales can only expected to go down.
 The electronic cars are taxed at 12% under GST. The GST scheme imposes 8.5% lesser taxes
on electric cars. The reason behind this is to electrify or to develop Eco-friendly
manufacturing unit .
 The luxury car manufacturers had been become upbeat as GST was set at a lower rate i.e 43%
(including 15% cess) as compared to the previous tax regime i.e 46.5 % . Now GST council
 has decided to raise the cess on large cars from 15% to 25% by taking the total tax incidence
to 53% (28% GST +25% cess). If govt implements the decision, The manufacturers will have
to increase prices which may lead to double digit drop in sales, affect future investment and
cause job losses . The luxury car market posted its first ever decline in 2016 because of the
ban of diesel vehicles in national capital region, introduction of infrastructure cess and
demonetisation in November.
 The smaller car with petrol engines upto 1200cc diesel engine upto 1500cc has not been
changed as expected. The GST rates for small cars (petrol) continue to stay 29% (28% GST +
1% cess) and small cars (diesel) are taxed at 31 % ( 28% GST + 3% cess), While new mid
size segment cars has been created with a new total GST rate of 43 % (28% GST + 15% cess)
 SUV (sport utility vehicle ) will be taxed at a GST Rate of 43 percent which has been
decreased from 50.5 % under pre GST regime. The cess on SUVs has surged by 7 % taking
the incidence of 50%.

FINDINGS
India has just witnessed by opening a new chapter in the economy with anew taxation scheme that is
GST. GST has replaced all multiple state and central taxes like excise duty, NCCD, infra cess, CT,
VAT etc. The implementation of GST has brought some good news for new car buyers. I almost all
parts of the country, all cars barring hybrid vehicles have become more affordable than before.

It should also be noted that , there will be some increase in insurance costs and loan EMIs as service
tax has been increased from 15% to 18% also cars belonging to small and big size segment were
expected to get slightly costlier than before. However process of most Maruti Suzuki cars belonging
to these segments have either come down or remained as it is.

It is worth noting the fact that hybrids rate attracting 43% GST. However it is significantly higher
than before. The increase in taxes will hunt hybrid vehicles the most cities like Delhi where these
vehicles previously enjoyed lower VAT rate i.e. 5% and excise duties i.e. 5%.

Over and above, based on vehicle classification there is an extra cess of 1%, 3%, 15%, 17%, 20% and
22%. GST council has now proposed another cess slab of 25%. If this slab is passed then the
maximum rate at which cars could be taxed will increase from 43% to 53%. It is likely that SSUVs
and luxury cars will be taxed under the newly proposed highest slab.

CONCLUSION
The execution of GST, charges moves from the root state to the utilization state because of
that general financial action is required to broaden and it could expect a vastly improved
GDP development that should push interest for vehicle crosswise over classes. Effect of duty
falling will escape that may decrease general cost of auto creating as all assessments on input
paid are counterbalanced with the yield obligation of GST. The mal practices of fake bills,
CENVAT / VAT being made to one by way of only billing and supply to another in cash would
certainly be curbed. We have seen lot of litigation pertaining to eligibility/ availability of CENVAT
Credit with a large proportion in Rule 6 reversals. We were expecting a seamless credit mechanism
under proposed GST regime. However, the carry forward / presence of blocked credits goes against
the principle of having a seamless GST credit scenario. Nevertheless, with the rough edges being
fairly dealt with and the expectation of limited exemptions coupled with entire credit mechanism to be
system driven along with real time matching through the GSTN, it is hoped that the GST regime
would simplify the entire credit availment process curbing future litigations. Restrictions and
conditions on eligibility to tax credits on assets used for business is also a major area of
concern, and the credit mechanism should be more liberal. Proper GST administration and
dispute resolution (more importantly on inter-state transactions) is very critical apart from the
competitive GST rate.

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