Don't include VAT deviations in claims, states told

The finance ministry has informed states that any revenue loss on account of deviation from the 4 per cent Value Added Tax rate on foodgrain and 12.5 per cent on tea will have to be borne by them and cannot be included in compensation claims made to the Centre this fiscal.

States like Karnataka, Maharashtra and Tripura, which have already filed compensation claims totalling over Rs 475 crore for the current fiscal, have been asked to indicate the loss, if any, on account of deviation on the two items and deduct the sum from their claims.

"The finance ministry, a month ago, has communicated to all states that any deviations from the agreed VAT rates on foodgrain and tea will not be recognised by the Centre while calculating their compensation," a government official told Business Standard.

The finance ministry's decision follows an earlier move by the empowered committee to exempt states from mandatorily imposing a 4 per cent VAT on foodgrain and 12.5 per cent VAT on tea only in the first year of VAT in 2005-06.

The empowered committee of state finance ministers on VAT later decided to extend the exemption by another year in case of foodgrain.

"While fixing the VAT rates is a prerogative of the states, the finance ministry has decided that it will not include deviations on VAT rates from the agreed 4 per cent on foodgrain and 12.5 per cent on tea this year while calculating the compensations," the official said.

The ministry had earlier indicated that any revenue loss on account of reduction in rates for LPG would not be included in the compensation claims. The government, in the budget this year, had announced that LPG would be a declared good and attract only 4 per cent VAT.

Officials said the processing of compensation claims for states this fiscal was also held up on account of the states failing to submit the audit accounts for the last fiscal.

"We are already seven months into the current fiscal and claims for this year cannot be cleared unless the finance ministry has the audited accounts for the last fiscal from the states," an official said.