Tobacco may come under VAT as part of a compensation package, asked by states from the Centre, for revenue loss due to the proposed phase out of Central Sales Tax from April one, 2007.

VAT panel on Tuesday decided to ask the Centre a compensation package, including powers on service tax, authority to levy VAT on imports and certain items under Additional Excise Duty and relaxation on 'declared goods' to enable states to go for reduction in CST from next fiscal, panel Chairman Asim Dasgupta told reporters.

The Panel also demanded budgetary support if its fiscal demand falls short of revenue loss due to CST phase out, Dasgupta said. CST, levied at four per cent on inter-state sale of goods, is projected to to fetch Rs 25,000 crore to states from 2007-08.

Though he did not mention which items from additional excise duty (AED) ambit the panel want for the purpose of VAT, sources said the Empowered Committee has decided for tobacco. Besides tobacco, textile and sugar fall under the AED net.

Sources said though the Centre may not agree to all the demands of the panel, tobacco may easily be transferred to the VAT list as it was on the states request that the three items were transferred from sales tax to AED.

VAT panel would meet Finance Minister P Chidambaram in the first week of next month on states' demand for compensation package and anything concrete can only be announced after that meeting, Dasgupta said.