New Delhi: The Centre on Wednesday said the demand of states for continuation of compensation for their revenue loss on account of reduction in central sales tax (CST) is under examination.
"Matter of further CST compensation is under examination with the Government," Minister of State for Finance S S Palanimanickam said in a written reply to the Lok Sabha.
Many states have made representation that the Centre should continue to compensate them for the loss on account of reeducation in CST rate till the proposed Goods and Services Tax (GST) regime becomes operational.
Palanimanickam said the original decision for compensation on CST account was only till 2009-10 which has "been paid in full".
GST, which will empower the Centre and states to simultaneously tax supply of goods and services, was to be introduced from April 2010.
As a precursor to introduction of GST, the CST was to be reduced to zero in a phased manner and the Centre was to compensate states for their revenue loss. The CST on inter- state movement of goods is collected by the central government but the revenue goes to states.
The CST rate has been brought down to two percent from the earlier four percent.
Recently, Chairman of the Empowered Committee of State Finance Ministers Sushil Kumar Modi had sought Prime Minister Manmohan Singh's intervention to resolve the compensation issue.
States have also suggested that they should be allowed to restore the CST rate to four percent in case the central government was not able to pay the compensation.
A Constitution Amendment Bill on GST was introduced in Lok Sabha in March last year and is being currently scrutinised by the Standing Committee on Finance.