The move comes in the face of rising fuel costs due to increase in tax rates on petroleum products and severe revenue loss to some states.

States like Delhi and Uttar Pradesh will have to face revenue loss from diesel till the VAT panel resolves the issue of floor rate of tax on petroleum products on April 26, state government officials said on Monday.

They added that Delhi may have to take out diesel from the VAT list as Asim Dasgupta, chairman of the empowered committee, made it amply clear that petroleum products will be out of VAT as their prices are not market-determined. "Petroleum products are still out of VAT.

The crisis over VAT: Complete coverage

There will be no deviation. The reason why petroleum products have been kept out of VAT is that they are not marketable commodities and fall under the administered price mechanism," Dasgupta said.

Delhi has imposed a VAT of 20 per cent on diesel, which is much higher than the earlier sales tax of 12 per cent.

Uttar Pradesh also charges 20 per cent sales tax on diesel. In contrast, neighbouring states like Haryana and Punjab have kept it at 12 per cent and 8.8 per cent, respectively.

The empowered committee had earlier decided on a minimum tax rate of 20 per cent on diesel. The Delhi government has admitted it has lost 40-50 per cent revenue during the first 13 days of imposition of VAT.

A K Walia, finance minister of Delhi, said, "We are losing revenue to the neighbouring states. We have asked the empowered committee to ask other states to increase the tax on diesel to 20 per cent or allow us to violate the floor rate."