States want the central government to resolve the Central Sales Tax (CST) compensation issue before moving ahead with the rollout of the Goods and Service Tax (GST) regime.
The Empowered Committee of State Finance Ministers, chaired by Bihar Deputy Chief Minister Sushil Modi, on Thursday discussed the CST compensation issue and setting up of the dispute settlement authority.
"States want resolution to their CST compensation demand. If demand not met, the states will not go ahead with the GST rollout. They also have an issue with the design of GST," Madhya Pradesh Finance Minister Raghavji told reporters after the meeting.
States, he added, are opposed to setting up of dispute settlement authority as it would impact their autonomy.
GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010, but has missed several deadlines. CST is collected by the Centre and distributed among states.
As a pre-cursor to GST, the Centre and states in April 2007, had agreed to phase out CST over a period of three years and in line CST rate was reduced to 3% and then to 2%.
The Centre had already compensated states for losses up to 2010-11.
As the Centre refused to go on compensating the states for delay in implementation of GST, states had argued that when it was decided to phase out CST, it was presumed GST would be implemented from April 2010.
In a letter to the Empowered Committee dated January 27, Finance Secretary R S Gujral said that states would not be paid any CST compensation from 2011-12 onwards and the payout for 2010-11 will be restricted to the Rs 63.94 billion that had already been paid against the Rs 190 billion demanded by the states.
The states have also suggested that they should be allowed to restore the CST rate to 4% in case the central government was not able to pay any further compensation.
Besides the states also have serious reservations on some crucial components of the GST design like creation of a Dispute Settlement Authority (DSA) in the constitution itself to prevent deviations in the structure.