State governments have raised serious reservations against a plea by the aviation ministry and domestic carriers to reduce sales tax on aviation turbine fuel.

Worse still, states like Kerala which had reduced the tax rate from 28.5 per cent to 4 per cent to encourage carriers to buy from the state have decided to take back the benefit alleging that it is not being passed on to the customers as promised.

The state government is now planning to hike the rate to 20 per cent.

The decision was conveyed at a meeting of the empowered committee of state finance ministers on oil that was held in New Delhi today.

"We had decreased the tax rate primarily because Andhra (Pradesh) did it and we did not want any diversion of flights there. But we find that nothing has been done by airlines to pass on the benefit to the customers. We are, therefore, reversing our stand and plan to increase the tax rate. We are looking at a figure of 20 per cent," said Kerala Finance Minister Thomas Isaac.

Andhra Pradesh, Maharashtra and Rajasthan have also reduced sales tax on ATF to 4 per cent.

"All state governments agreed on this. We also decided that instead of letting the Centre play states against each other and have different tax rates, we should have a common tax rate for ATF. It will definitely be more than 12.5 per cent. But we will have to see if other states agree on 20 per cent," he added.

According to sources, even Karnataka officials said they were not interested in decreasing the tax.

Chairman of the empowered committee and West Bengal Finance Minister Asim Dasgupta said a final decision would be taken at a similar conference in Srinagar on June 21-23. "We have asked the civil aviation ministry for more information on ATF," said Dasgupta.

When asked about state governments' threat, Civil Aviation Secretary Ashok Chawla said: "In our last meeting, we had asked state governments to decrease sales tax on ATF to 12.5 per cent but given the current situation, even that relief is not enough. The situation is such that if they are not given relief, airlines will have to increase fares further. Passing benefits on to the customers at this stage is, therefore, out of question."

The price of ATF has more than doubled in the last three years and so its contribution to states' revenue has gone up enormously.

According to statistics from the civil aviation ministry, Karnataka's revenue from ATF increased by 270 per cent between 2004-05 and 2007-08 whereas its revenue from high-speed diesel rose by only 50 per cent.

Delhi's revenue from jet fuel rose by 107.5 per cent during the period, while its revenue from HSD went up by around 66.4 per cent.

ATF consumption in India increased to nearly 4.5 million tonnes (mt) in 2007-08 from 2.81 mt in 2004-05 with domestic flights per week increasing from around 6,500 to around 11,000 during the period.