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Orissa seeks full compensation against CST loss in 2010-11
June, 20th 2011

Even as its key demand of keeping coal royalty out of the purview of the proposed Goods & Service Tax (GST) is understood to have been turned down by the Centre following opposition from non-coal bearing states, Orissa has pressed for full compensation on account of phasing out of Central Sales Tax (CST).

"For 2009-10, the Government of India (GOI) had decided to compensate 68 per cent of the loss. However, the empowered committee of state finance ministers had decided that the remaining 32 per cent should also be compensated by the GoI. As far as CST compensation for 2010-11 is concerned, CST is a permanent loss and full compensation has to be given by the GoI. Our demand is that full compensation towards loss on account of CST should be given to the states till GST is introduced, said a senior official of the state finance department.

It may be noted that that Orissa had claimed Rs 380.17 crore as compensation towards loss on account of CST reduction for 2007-08 of which the GOI had sanctioned Rs 137.02 crore.

Similarly, for 2008-09, the GoI had sanctioned Rs 425.40 crore as against a compensation claim of Rs 483.29 crore by the Orissa government.

As per the guidelines for compensating loss on account of phasing out of CST issued on October 10, 2007, the actual CST revenue during 2006-07 shall be taken as the basis of actual collection for the purpose of assessing the revenue for 2007-08, 2008-09 and 2009-10 on the compounded annual growth rate (CAGR) of total CST revenue for the period from 2003-04 to 2006-07.

The actual CST revenue during 2007-08, 2008-09 and 2009-10 shall be compared with the projected CST revenue as computed by applying CAGR to the base year collection (2006-07) in order to arrive at the figure of CST loss to be compensated.

Later, the GoI modified the guidelines for compensating loss on account of phasing out of CST and issued revised guidelines on August 22, 2008. As per the revised guidelines, the CST loss shall be limited to the 'proportionate loss' based on actual collection over the period for which compensation is paid.

The proportionate CST revenue over the period will be calculated by extrapolating the actual CST revenue collected in that period at the actual reduced tax rate to a notional amount that would have been collected had the tax rate continued to be at four per cent.

The proportionate loss would be the difference between the proportionate CST revenue so computed and the actual CST revenue for the period under consideration.

The GoI is presently sanctioning the claim of compensation by proportionate loss method. The amount of gain towards abolition of Form-D is being deduced from the amount of compensation arrived at by the proportionate method.

With regard to deduction of gain towards abolition of Form-D, it has been decided by the Empowered Committee of state finance ministers that no deduction on account of abolition of Form-D may be made from the compensation amount on the ground that any additional amount which would accrue from the CST collected by the states on account of abolition of Form-D, that much amount gets reduced from the compensation automatically.

Therefore, further reduction on account of withdrawal of Form-D would mean double deduction on the same account.

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