Federal indirect tax body, the GST Council, will not increase GST cess on items like automobiles at its meeting on Saturday but will instead consider fixing anomalies in the tax structure which may see tax rate changes on items like mobile phones, footwear and textiles, said a person aware of discussions between union and state governments.

GST cess levied on items like cars, tobacco and aerated drinks is used for making up for state governments’ GST revenue losses and the union government was open to raising it if states supported the move. This, however, has not cut ice with the states.

“There is limited scope for increasing the cess. There is an economic slowdown. Whatever revenue is coming now, will stop coming (if cess is raised). Nor do we find any cause for increasing tax rate on items covered under the cess," said the person quoted above.

The Council meeting is geared towards removing the problem of tax outgo on raw material purchases of companies remaining higher than the tax liability on the finished products they sell. This problem, said the person, who spoke on condition of anonymity, is severe in the case of mobile phones, footwear, ready made garments.

“There are suggestions from the fitment committee to correct this. Inputs are much costlier for businesses in these industries. It will be difficult for states to refund excess input tax credit," said the person.

“When there is inverted duty structure, it is an anomaly that acts like a bait to the assessee to claim fake input tax credit," said a second official, who also spoke on condition of anonymity. Fake input tax credit claims have also been a major issue that central and state tax authorities have been combating in recent months.

The Council is also expected to discuss the status of GST compensation to states, many of which have complained about delays in payments by the central government. A heated discussion is also likely to take place about what needs to be done if the cess collected falls short of the requirement. “States will have to reconcile to the fact that in the law, it is written that compensation is to be paid from the compensation cess proceeds. It is not that the central government will top up the compensation fund. It will be very difficult for the Centre also," said the first official quoted above.

Among major state economies, Punjab, Delhi, Rajasthan, Uttar Pradesh, Bihar, Assam, West Bengal, Odisha, Maharashtra and Kerala have reported double digit revenue growth in February compared to the same month a year ago. Union and states collected over ?1 trillion in GST in February, an 8% jump from what was collected in the same month a year ago, as per official data.