Finance Minister Mr. P Chidambram has informed the parliament during his budget speech that the CST rate will be reduced with effect from 1-4-2008. The text of speech of FM is reproduced hereinafter:

"183. Following an agreement between the Central Government and the State Governments, the rate of Central Sales Tax was reduced from 4 per cent to 3 per cent in this financial year. It is now proposed to reduce the rate to 2 per cent from April 1, 2008. Consultations are underway on the compensation for losses, if any, and once agreement is reached the new rate will be notified. I am also happy to report that there is considerable progress in preparing a roadmap for introducing the Goods and Services Tax with effect from April 1, 2010."

But, the central government did not issue any notification for reduction of CST from 3% to 2%.

Based on the speech of Finance Minister in Parliament, a majority of businessmen started charging CST at the rate of 2%.

Since there is genuine misunderstanding in the field about the reduced rate of CST, the businessmen who charge 2% might be penalized for less charging of CST in future.

Now, Asim Dasgupta, chairman of the empowered committee of state finance ministers, told reporters after meeting Union finance minister P Chidambaram that, "The Centre and state governments have agreed to carry out a constitutional amendment to facilitate levy of VAT on imports. Both sides will now meet on April 16 to rework the modalities of compensation formula for reduction of central sales tax (CST) from 3% to 2% expected from May 1" (Source:  Economic Times)

We wish that the Central Government should come out with some clarification without any loss of time to remove the confusion and to make the stand clear.

Central Sales Tax rate reduction causes compliance uncertainty as businesses face potential penalties for charging a lower rate. Announcement that the Central Sales Tax rate would be reduced has produced compliance uncertainty because no formal notification has been issued. The Finance Minister's parliamentary statement and subsequent intergovernmental discussions on compensation and an expected effective date prompted many traders to charge the lower rate, creating risk of future assessments or penalties absent official clarification.