The Centre’s efforts to introduce a Constitutional Amendment Bill in the ongoing Parliament session to bring in the Goods and Services Tax regime suffered a blow with States rejecting the draft, saying that it did not address their concerns.

The taxation of petroleum products and entry tax continued to be the sticking points between the Centre and the States.

Finance Minister Arun Jaitley’s assurance to the Lok Sabha that the Centre will partially pay the dues on Central Sales Tax (CST) this fiscal did not appear to convince the States. Hectic parleys continued between the Centre and the States on Thursday over the issues which threatened to derail the Centre’s efforts.

The Empowered Committee of State Finance Ministers, headed by Abdul Rahim Rather, conveyed to Jaitley that the States do not want petroleum products to come within the ambit of proposed dual-GST. They were also not willing to allow entry tax to be brought within the proposed new regime.

The most important demand from the States was that the compensation formula for GST losses, if any, should form part of the Constitutional Amendment Bill.

“We want consensus to be evolved. That is the intent of cooperative federalism. It will not be advisable to go ahead with GST without taking the States on board,” Rather told reporters.

This comment came hours before a committee, including Rather, and few State Finance Ministers (of Haryana, Punjab, Chhattisgarh and West Bengal) were to meet Jaitley to sort out the contentious issues.

The Centre is keen to take forward the process of GST implementation, which is the biggest ever tax reform initiated in the country. One of the reasons for the delay in GST is the trust deficit between the Centre and the States in payment of CST-related dues. With Jaitley coming forward to bridge this trust deficit, expectations were running high that both the Centre and the States will move forward.

Jaitley is now understood to be in favour of creating a GST compensation fund through a statute.

Gujarat blues Satya Poddar, Tax Partner-Policy Advisory Group, EY, said Gujarat has been one of the most vocal States to oppose GST. It claims to be losing ₹8,000 crore from CST with no adequate compensation from the Centre for the loss.

“It appears that the States have decided to go back to square one till the Government guarantees adequate compensation. Gujarat's stand is surprising. Soon after the union elections, the Gujarat Chief Minister has been assuring that GST will not be opposed as they are confident that the new Government will listen to their demands. But now, contradictory statements are being made by the same State. The Prime Minister (Narendra Modi) should now intervene to break the deadlock and have the GST implemented by April 2016,” Poddar said in a statement.

Earlier in the day, the Empowered Committee met in the capital. Finance Ministers of 16 States attended this meeting. The remaining States were represented by secretaries and senior officials.

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