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Pressure Centre to clear CST dues: Sushil Modi

The confrontation between the Centre and states is likely to intensify with the Empowered Committee of State Finance Minister on GST writing to chief ministers of 17 states.

, ET Bureau|
Last Updated: Mar 31, 2012, 12.30 PM IST
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NEW DELHI: The confrontation between the Centre and states is likely to intensify with the Empowered Committee of State Finance Minister on GST writing to chief ministers of 17 states to pressure the Manmohan Singh government to clear their CST compensation dues till the new taxation system is introduced, or, alternatively, restore CST rate to 4%.

Finance minister Pranab Mukherjee, in his reply to the discussion on the Finance Bill in the Lok Sabha on Tuesday, had expressed his inability to compensate states 'indefinitely' for the losses suffered by them in their revenues because of the decrease in central sales tax rate from 4% to 2%. He said he was willing to sit with state government representatives to clear the misunderstanding on the issue.

In a letter written on March 26 to chief ministers of 17 states, including eight run by Congress, Empowered Committee chairman Sushil Kumar Modi, the deputy chief minister and finance minister of Bihar, asked "to take up the matter with either the prime minister or the Union finance minister to continue to make full CST compensation payment to states till GST is implemented without any deduction on account of increase in lower VAT rate from 4% to 5%. In case, due to financial constraints, the Government of India is not in a position to continue to give CST compensation till GST is introduced, then CST rate may be restored to 4%,'' Modi added.

Modi sent letters to Andhra Pradesh, Assam, Delhi, Haryana, Maharashtra, Meghalaya, Rajasthan and Uttarakhand - all of which are run by Congress - and West Bengal, led by alliance partner Trinamool Congress. Identical letters have been sent to Akhilesh Yadav, the newly-elected chief minister of Uttar Pradesh, J Jayalalitha and Naveen Patnaik, who head the governments in Tamil Nadu and Odisha, respectively. Chief ministers of Chhattisgarh, Gujarat, Madhya Pradesh, Jharkhand and Karnataka - all of which are administered by the BJP - have also been covered in the exercise.

The Centre in consultation with states had decided to phase out central sales tax in three years, with effect from April 1, 2007. It was then decided to roll out goods & services tax from April 1, 2010. In keeping with the roadmap, CST rate was first brought down from 4% to 3% on April 1, 2007, and to 2% on June 1, 2008. There was no reduction after that.

The Centre compensated the states for the loss in their revenues because of CST rate reduction for 2007-08, 08-09 and 09-10, according to the revised compensation package guidelines of August 22, 2008. Despite the fact that GST could not be launched on April 1, 2010, the government agreed to clear the compensation package for 2010-11, but after making several deductions, the most important of which was the deduction for increasing the lower VAT rate from 4% to 5%.

In a letter addressed to the Empowered Committee chairman on January 27, finance secretary RS Gujral said that the issue of payment of CST compensation for the year 2010-11 "may be considered as finally settled,'' and that there would be no clearance of dues after that. Expressing dismay over the development, Modi argued, "it was never the understanding that a unilateral decision will be taken in this regard by the Government of India.''

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