States adamant, Centre misses CST cut date

The differences may be resolved at a meeting of the Empowered Committee of State Finance Ministers scheduled for May 5-6.

According to the original schedule announced in 2007, the CST rate was to be cut to 2 per cent from April 1, 2008. The date was subsequently changed to May 1.

There is no agreement between state and central governments on compensating states for the revenue loss of around Rs 7,000 crore in 2008-09 due to the reduction in the CST rate to 2 per cent. In 2007-08, the loss on account of the rate cut to 3 per cent from 4 per cent was pegged at Rs 6,000 crore.

The Centre wants states to increase the value-added tax (VAT) rate to 5 per cent from 4 per cent and impose VAT on textiles to make up for the loss. States have instead sought direct compensation from the central government.

With the central government yet to notify the cut, the CST rate continues to be 3 per cent on all inter-state sales.

"As states are not keeping the earlier understanding of raising the VAT rate and bringing textiles under its ambit, the Centre is finding it difficult to sustain the burden," a finance ministry official said, adding that discussions with states were on.