States urged to go for electronic filing of CST

The finance ministry has urged states to computerise inter-state transactions ahead of the central sales tax (CST) cut to zero from the four per cent at present.

This follows concern that the phasing out of CST could encourage traders to declare intra-state transactions as inter-state sales.

"In the present regime, with a maximum value added tax of 12.5 per cent, the CST of four per cent gives a trader, undertaking inter-state sales, a margin of around 8 per cent. This will increase to 12.5 per cent when the CST is brought down to zero, thereby spurring more traders to show all their sales as inter-state," a ministry official said.

Traders who undertake inter-state sales have to report their sales through Form C in order to get the concessional CST of four per cent. Recent meetings of the empowered committee of state finance ministers have deliberated on the shortage of Form C, which can also be addressed if the filing of the form is made electronic, officials said.

They added that the committee had in-principle accepted the concept of dematting of Form C under which all inter-state transactions would be recorded online.

"The empowered committee has mandated Ernst & Young and ICICI Infotech to prepare a concept paper on dematting of Form C. The project, when implemented, will be part of TINXYS (Tax Information Exchange System)," the officials said.

The TINXYS system contains updated data on the tax paid on the transactions in a state. The data from each state is centralised and can be viewed by any state.

So far 14 states have joined TINXYS and are regularly updating their data. Another 12 states have expressed their willingness to convert to the system.

Meanwhile, VAT compensation claims outstanding against the Centre now stand at Rs 2,324 crore, of which Rs 2,227 crore has been sought by Maharashtra and Rs 97 crore has been sought by Bihar.

Officials said some additional claims pertaining to the last fiscal were likely from Andhra Pradesh and West Bengal. The Centre has already rejected a compensation claim of Rs 38 crore from Haryana.