States have asked Finance Minister Pranab Mukherjee to resolve the issue of payment of compensation for reduction in Central Sales Tax (CST) rate before demitting his office to contest the election of the post of President of India.

"I understand that you may be soon demitting the office of the Union Finance Minister. I therefore, humbly request you to kindly resolve the CST compensation issue before that," said Sushil Kumar Modi, chairman of the Empowered Committee (EC) of State Finance Ministers in a letter to Mukherjee.

Talking to PTI over phone, Modi while lauding Mukherjee for the work he has done so that the proposed Goods and Services Tax (GST) regime could be implemented at the earliest, cautioned that "in case the CST compensation issue remains unresolved longer, it may affect the implementation of GST".
 
Mukherjee, who is the UPA nominee for the Presidential election, is likely to resign on June 26 ahead of filing nomination to contest the election for the country's highest post.

States have complained that they got only about Rs 6,000 crore compensation in 2010-11 against the demand of Rs 19,000 crore. They are also agitated that they did not get any compensation in the last fiscal and the Centre has no plans for 2012-13 either.

As per an agreement, the CST rate was to be reduced to zero in a phased manner, and the Centre was to compensate state governments for the loss of their revenue on account of cut in the levy rate.

CST, a tax on inter-state movement of goods, was reduced from 4 per cent to 3 per cent in 2007-08, and further to 2 per cent in 2008-09 after the introduction of Value Added Tax (VAT). There was no reduction after that.

Although CST is levied by the Centre, the revenue goes to the state government and the state from which movement of goods commences gets revenue.Modi, a senior BJP leader and Deputy Chief Minister of Bihar, further said states are for early implementation of the GST regime.

A constitutional amendment bill for implementation of GST is currently being scrutinised by a Parliamentary Standing Committee headed by senior BJP leader and former Finance Minister Yashwant Sinha.

Modi said the committee is likely to submit its report during the forthcoming Monsoon Session of the Parliament.

He along with others had presented their views on GST before the Committee last week.
Earlier in January, the Union Finance Ministry had told the state governments that no further compensation would be provided on account of phasing out of CST.

GST would subsume levies like excise, service tax and states tax like value-added tax, entry tax and purchase tax.