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Restore CST Act if Centre cannot compensate State'
March, 05th 2012

The Centre should restore the CST Act if it does not adequately compensate the State Governments for the loss in the CST revenue, said Mr C.Ve. Shanmugam, Minister for Commercial Taxes, Tamil Nadu, at the meeting of the Empowered Committee of Finance and Taxation Ministers in New Delhi.


According to a copy of the Minister's address released to the media, the State Government has expressed strong objection' to the Centre's stand on CST compensation.

The Centre has imposed heavy cuts in compensation due to the State on CST losses and has ruled out CST compensation from 2011-12 even before implementing the Goods and Services Tax.

As of 2009-10, a total compensation of more than Rs 1,860 crore is yet to be released to Tamil Nadu.

In 2010-11, the Centre has imposed heavy cuts in compensation on the grounds that lower VAT rates have not been hiked to 5 per cent from 4 per cent.

In 2010-11, over Rs 2,000 crore has been cut from the compensation and just Rs 58 crore released.


The Tamil Nadu Government was for levy of service tax through a negative list as long as it does not encroach on the taxation power of the State Governments and services of socio economic importance to the general public are kept in the negative list, he said.

Tamil Nadu also sees no need to link taxation of services based on a negative list and roll out of GST.


The implementation of GST will help the State Governments understand the gain in revenue provided by the power to levy State-GST on services while sharing the power to levy taxes on Goods with the Central Government when the GST is rolled out.

Tamil Nadu's VAT revenue as of January, 2012 has grown 28.31 per cent as compared with the growth rate 24.06 per cent in the previous year. This increase is mainly due to the upward revision of VAT rates from the 4 per cent to 12.5 per cent range to 5 per cent to 14.5 per cent with effect from July 12, 2011.

The average growth rate of non-VAT revenue in Tamil Nadu up to January, 2012 was 20.56 per cent.

The Minister also expressed the State Government's objection to airline companies being allowed to directly import ATF.

The Director General of Foreign Trade has permitted the airlines to directly import ATF on the ground that its price is high due to high sales tax imposed by the States.


This will deprive the State Governments of a significant revenue source. Tamil Nadu stands to lose more than Rs 240 crore a year if the ATF is imported by the airlines.

Airlines are losing money due to unreasonable ticket pricing, congestion at airports and large debt. It is not proper to single out the levy of sales tax by the States as being only responsible for it.

In fact, levy of sales tax on sale of ATF to smaller aircrafts (with a maximum takeoff mass of less than 40,000 kg) is restricted to 5 per cent by giving it the Declared Goods status under the CST Act.

The Empowered Committee should take up the issue strongly with the Centre to roll back this measure, he said.

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