A change in GST means a car dealer’s working capital will go up by Rs 1 cr per month

This comes along with high inventory build-up, high Insurance cost, squeeze in liquidity from NBFC and banking institutions that has already dented the financial health of auto dealers.

Federation of Automobile Dealers Associations (F A D A), the apex body of Automobile Retail Industry feels that the recent amendment made by the Government in Section 49 of CGST Act by introducing new section 49A, will lead to an unwarranted blow for the auto retail sector.
The amendment will impact on the method of tax payment and therefore, have major impact on the
cash flow of auto retail industry while discharging its tax liability. According to the new law which comes into effect from February 1 2019, IGST credit has to be first utilised and when such credit is exhausted only then the credit of CGST and SGST if any, shall be utilised against output tax liability.
Majority of auto dealers purchases vehicles from OEMs on IGST and sell it to the end customers on SGST which they will not be able to set it off by utilizing the existing credits as according to the new law as IGST has to be used first for setting off IGST followed by CGST and the remaining for SGST.
According to a statement this will create an additional requirement of Working Capital to the tune of Rs 1 crore for 4-wheelers and Rs 50 lakhs for 2 -wheelers on a monthly basis for 25,000 auto dealerships across the country.
Currently, all the Automobile Dealers of the Country are faced with following specific hardships:

• Blockage of ITC available in books of account
• Need for additional working capital to match blockage of ITC
• Additional cost of working capital in the form of interest
• The reduced profitability

The Rs 5 lakh crore automobile retail trade is already reeling under the pressure of unexpected low sales from the start of the festive season from September and the de-growth continues even till February and has further increased.
This comes along with high inventory build-up, high Insurance cost, squeeze in liquidity from NBFC and banking institutions that has already dented the financial health of auto dealers.