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GST Deadlock Over, States Resolve Contentious Issues

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Paving the way for early rollout of Goods and Services Tax, states reached a broad consensus on the design of the new indirect tax regime under which states will be free to decide on the time of its introduction.
The consensus over the major roadblock in GST rollout comes a day after resolution was reached on the contentious issue of CST compensation with the states agreeing to accept a lower package of Rs 34,000 crore.
"The deadlock over GST issue is now over. It is historic as there was a general consensus for introduction of GST," Empowered Committee of State Finance Ministers Chaired by Bihar's deputy chief minister Sushil Kumar Modi told reporters in Bhubaneswar.
At the two-day meeting of state finance ministers, Modi said that it was agreed that instead of a single rate for GST there would be a floor rate with a band, giving freedom to states to fix their own rates.
With regard to another contentious issue of Dispute Settlement Authority (DSA) in the GST Bill, Modi said that Centre has also agreed to do away with the provision. Instead, he added, there would be a GST Council to resolve the disputes.
States had serious reservations on creation of a Dispute Settlement Authority (DSA) in the Constitution itself to prevent deviations in the structure, as they feel disputes can be resolved through consensus rather than a DSA with such level of authority.
The DSA, as proposed in the Bill, was to deal with grievances of the Centre and the states with regard to GST.
The body would consist of a chairperson and two other members.
The Empowered Committee also decided to suggest to the Finance Ministry to incorporate provisions for allowing states to opt out of the GST fold if they desired so, he said, adding "in the present GST Constitution Amendment Bill there is no such provision. We cannot force states to accept GST".
Modi said that taxation of petroleum products would not be included in the GST legislation, giving freedom to states to impose the levy.
Stating that there was a general consensus over the design and basic features of the GST, Modi said the states demanded the centre should not hold rights to impose tax on declared goods like coal and LPG.
"The states want removal of this provision of declared goods from the Bill," he said.
In yesterday's meeting, the issue of states agreeing for a lower payment of Rs 34,000 crore for phasing out the Central Sales Tax, a precondition for rollout of the GST.
The centre had then promised the states that it would bear losses due to reduction of CST.
The Empowered group also set up three sub-committees to resolve issues which could not be agreed upon by the finance ministers of different states, he said, adding that they would submit report in three months.
They would deal with revenue neutral rates, withdrawal of dual control system and taxation of inter-state movement of goods.
GST rollout has missed several deadlines on account of differences over contentious issue of CST compensation and design of the GST structure between the states and the Centre.
Introduced in Lok Sabha in March 2011, GST Constitution Amendment Bill is with the Standing Committee on Finance.
Modi had yesterday said that the states desire that the GST should be rolled out in next fiscal, failing which they would revert to the CST levy of 4 per cent.
Finance Minister P Chidambaram recently said that even as GST Bill is unlikely to be passed by April 2013, he hopes to introduce it in the Monsoon session.