Inter-state goods procurement by government agencies can become costlier with the empowered committee of state finance ministers on value-added tax proposing to withdraw Form D, which extends a concessional central sales tax of 4 per cent on all such purchases.

At present, government agencies (both Centre and state) pay a concessional CST of four per cent on inter-state purchases by submitting Form D.

Officials told Business Standard on Tuesday the committee had also recommended withdrawal of Form C, which extends the same concession to registered dealers making inter-state purchases.

Under the provisions of Section 3 and 6 of the Central Sales Tax Act of 1956, a concessional rate of 4 per cent CST is chargeable on inter-state sale of goods provided the goods are being purchased by the buyers for re-sale, manufacture or processing for re-sale, and distribution of power and packing of goods for sale or re-sale. Buyers have to furnish Form C or D, as the case may be, to avail of the concession.

The matter was raised by the committee officials at a meeting with senior finance ministry officials recently. The ministry is, however, yet to firm up its views on the proposal.

If Forms C and D are withdrawn, then as per present norms, all such purchases will attract a 10 per cent tax or the rate of sales tax as applicable in the state selling the goods, whichever is higher.

Officials said withdrawal of the forms would mean higher revenue for bigger manufacturing states like Maharashtra, which would be able to impose a tax of 10 per cent on all inputs attracting a VAT rate of 4 per cent and 12.5 per cent on all VAT items.

Indirect tax practitioner Rajan D Gupta said the move could also discourage inter-state purchases as they would attract a higher tax rate of 10 per cent or 12.5 per cent.

Finance ministry officials said the phase-out of the CST would only begin in the next financial year as the contours for a possible compensation package to states were yet to be finalised.

Withdrawal of the CST is becoming a contentious issue as states are demanding compensation for the tax which provides states an annual revenue of around Rs 15,000 crore (Rs 150 billion).