Union govt’s decision to slash GST rates on most goods effective Sep 22 has brought cheer to consumers and optimism to businesses. But behind the smiles, traders across sectors are crunching numbers, worried about blocked credits, working capital pressures, and the fallout of cess balances.
For Gujarat’s automobile dealers, the concerns are particularly acute. With the rollout of GST 2.0, the accumulated compensation cess in their electronic credit ledgers risks lapsing, leaving dealers facing a liquidity squeeze. The Federation of Automobile Dealers Associations (Fada), which represents over 9,000 dealers nationwide, has flagged the issue to the Centre, seeking transitional provisions.
“Even a small dealer will have Rs 1 crore of cess stuck, while larger operators may be saddled with Rs 4-5 crore. This will severely impact working capital, especially during the festive season when inventories are bank-funded and at their peak. Govt must either allow cess transfers to IGST/CGST ledgers or permit refunds to prevent permanent losses,” said, chairperson of Fada, Gujarat. Dealers argue that without such relief, blocked credit will erode liquidity, especially during the festive season when inventories are bank-funded and at their peak.
FMCG distributors face a similar conundrum. The majority of products have shifted to the 5% slab from 12% and 18%, but refunds are barred under the inverted duty structure. Dealers will instead have to absorb input tax credit (ITC) and set it off over time.
“Our margins are already wafer-thin. With cuts of 7% and 13% across most products, it will take a long time for distributors to adjust ITC against new liabilities. The absence of refunds will cause a huge working-capital crunch,” said chairman of Federation of Gujarat FMCG Distributors Associations.
Tax experts caution that disputes may arise. “The FAQs after the 56th GST Council meeting clarify refunds are not admissible in inverted duty cases. But rate rationalisation has moved many products from 12% and 18% to 5%, and some from 28% to 18%. This could trigger debates over whether refunds should still apply,” said chairman of the indirect tax committee at GCCI.
Box: Mixed bag for textile industry
Amid the confusion, Gujarat’s textile sector sees a silver lining. The removal of the inverted duty structure and adoption of a fibre-neutral policy will streamline operations, lower compliance complexities, and boost competitiveness across cotton and MMF chains, said officials of the Clothing Manufacturers’ Association of India (CMAI).
The threshold for the 5% slab has been raised from Rs 1,000 to Rs 2,500, making affordable fashion more accessible while strengthening domestic demand.
But challenges remain. “Garments above Rs 2,500 — woollens, handlooms, artisanal embroidery, and occasion wear — will still cost more, hurting middle-class buyers and traditional weavers ahead of the festive season,” said chief mentor, CMAI.
Source #TOI
