State governments have sought the Centre's permission for withdrawal of tax exemption on sale of items through the canteen stores department (CSD) route. States have cited the misuse of the facility by non-defence personnel as the primary reason for seeking withdrawal of the sales tax incentive.
The demand for withdrawing the sales tax waiver was raised by the special category states, including the north-eastern states, and supported by most other states at the meeting of the empowered committee of state finance ministers. According to officials, the number of cars sold through the canteen stores department in just one north-eastern state was found to be more than the total number of cars sold in the whole of the Northeast. "There is rampant leakage in the canteen stores department mechanism, and most of the products from the canteens are availed by people outside the defence services," a state government official said.
While the demand was made by the north-eastern states and other special category states, who had been feeling the pinch of leakages more than other states because of the heavy troop deployment, most other states also supported the demand for ending these exemptions, officials said.
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The canteen stores department facility has been extended to defence personnel whereby they get items of common consumption at lower than normal rates due to waiver of sales tax levied on these items. These exemptions were earlier restricted to liquor products and were subsequently extended to other items. According to officials, states are likely to ask the Centre to restrict the tax exemption to just liquor products and remove other items from the list of products sold through the stores department route.
While states were set to take up the matter with the Union finance ministry, the ministry of defence was likely to oppose their demands, officials said.