The Hindu Business Line : Central sales tax may not be abolished at one go

IT'S almost official now that the coming Budget will not fully eliminate the four per cent Central Sales Tax (CST) levied on inter-State movement of goods and the development of a common national market through a genuine Value Added Tax (VAT) regime will take some time.

The Finance Minister, Mr Jaswant Singh, today admitted that there were still "some concerns and apprehensions" about the phasing out of CST and its impact on revenues of States.

A final decision on the schedule for phase out would taken very soon, he told Members of Parliament (MPs) of the Consultative Committee attached to his Ministry here.

Going by the Minister's statement, it looks certain that the CST will not be abolished at one go, but merely "phased out".

Indications are that the CST would only be halved to two per cent with effective from April 1, 2003, when the proposed VAT regime is implemented in all States and Union Territories.

Under VAT, companies are eligible to avail credit on the sales tax paid on inputs, so that their effective tax liability is confined to the `value added' by them in course of manufacture.

Logically speaking, the manufacturer should be compensated not only for the sales tax paid on inputs sourced from within the State, but also for the CST that is levied on inputs sourced from another State.

While State Governments are said to be not averse to providing tax credit on inputs sourced from within their own State, they are, however, not too keen to provide a similar set off on inputs sourced from outside.

This is because the CST proceeds accrue entirely to the exporting State. And neither is the exporting State amenable to doing away with the CST considering the revenue implications. The total annual revenues to States from CST are in the region of Rs 13,600 crore, which includes Rs 3,400 crore for Punjab, Rs 2,000 crore for Maharashtra, Rs 1,400 crore for Tamil Nadu and Rs 800 crore for Karnataka.

Caught in between is the manufacturer who is faced with the cascading burden of paying CST on inputs sourced from outside the State, for which he cannot avail full set-off.

Further, the goods `imported' into the State are placed at a competitive disadvantage vis-à-vis the locally sourced inputs, on which there is no CST and the sales tax gets set-off.

In its report, the Kelkar Committee had noted that denial of credit in inter-State transactions would "cease to be an issue" if the CST is phased out.

However, it warned that in case the importing State does not provide for credit on the duty paid in the exporting State, it could attract the provisions of Article 304 (a) of the Constitution.

These prohibit any discrimination between local goods and imported goods in the matter of transaction.

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