States agree to accept reduced compensation on central sales tax loss

Jan 29 2013, 02:22 IST
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Summary"The amount of compensation for three years - 2010-11, 2011-12 and 2012-13 was about Rs 34,000 crore

Finance ministers of various states today agreed to accept reduced compenstation for their losses due to cut in the rate of central sales tax (CST) and seek Centre's nod to revert to 4 per cent CST in case of non-introduction of GST from April.

The decision in this regard was taken at the Empowered Committee of Finance Ministers at a meeting here chaired by Bihar Deputy Chief minister and Finance Minister Sushil Kumar Modi.

According to the resolution at the meeting on CST issue the Centre would bear 100 per cent of the loss of states due to cut in the rate of CST in 2010-11 fiscal and give 75 per cent on loss of states in 2011-12 and 50 per cent for 2012-13, Modi said.

The states had reduced the rate of CST in phased manner from four per cent to two per cent as per a central directive for introduction of the Goods and Service Tax (GST) in 2010. The centre had then promised the states that it would bear losses due to reduction of CST.

"However, the promises were not kept," Modi said adding the Empowered Committee accepted a central proposal to reduce the rate of compensation for early payment.

"The amount of compensation for three years - 2010-11, 2011-12 and 2012-13 was about Rs 34,000 crore. The Centre has agreed to pay this compensation amount to states," Modi said adding that the Centre should give some amount to the states before the coming budget.

Odisha, whose accumulated loss due to non-payment of compensnation on CST loss amounted Rs 1500 crore, would now get about Rs 1,000 crore after the states agreed to accept the reduced rate of compensation, said its Finance Minister Prasanna Acharya.

Finance ministers of 13 states - Gujarat, Assam, Jammu and Kashmir, Chhattishgarh, Karnataka, Madhya Pradesh, West Bengal, Punjab, Bihar, Tamil Nadu, Odisha, Delhi and Haryana attended the meeting while the other states were represented by senior finance department officers.

The Empowered Committee would deliberate on the GST issue tomorrow, Modi said.

Official sources said in April 2007, the Centre brought down the CST rate from 4 per cent to 3 per cent and further reduced it to 2 per cent in June, 2008, with a view to gradually phase out CST and introduce GST from April, 2010.

The Centre had compensated states for CST loss from 2007-08 to 2009-10. It also compensated states for 2010-11. But after deducting notional gain calculated

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