The minister said the release of compensation to states for their loss of CST revenue for the year 2010-11 had already started.

"An amount of Rs 2,411 crore has been released to 10 States for loss of CST revenue in financial year 2010-11," he added.

CST, a tax on movement of goods from one state to another, was reduced from 4% to 3% in 2007-08 and further to 2% in 2008-09 after the introduction of VAT.

The Centre plans to do away with CST in phases as it plans to implement Goods and Service Tax (GST), a new indirect tax regime.

States have estimated the loss accruing from the transfer at Rs 20,000 crore this fiscal and are demanding reimbursement for the same.

In February 2011, the Centre had cleared Rs 7,029 crore compensation to states for the losses they suffered due to reduction in CST rate in 2010-11. Of this, while Rs 3,000 crore was scheduled to be released in 2010-11, the balance of Rs 4,029 crore was to be given in the current fiscal (2011-12).

Palanimanickam said that the Centre was yet to formalise guidelines for compensating states for the loss of CST revenue in the 2010-11 fiscal.

He said the Empowered Committee of State Finance Ministers has suggested that the Centre should formulate the method for calculating compensation for 2010-11 fiscal on the basis of what followed for three fiscal years ending March 2010.

Source: Business Standard, India,  dated 02/08/2011