Amid repeated complaints of inadequate compensation for revenue loss due to lower CST rate, the Union Finance Ministry said on Tuesday it cannot compensate them 'endlessly for as many years as GST does not come'.
The Central Sales Tax is imposed by the Centre but revenue goes to the states.
CST rate has been reduced to 2 per cent, from 4 per cent earlier, as part of the phasing out of the tax in backdrop of proposed Goods and Services Tax.
"Compensation was originally planned for 3 years.
"Government of India cannot keep paying compensation endlessly for as many years as GST does not come," Finance Secretary R S Gujral said while addressing a FICCI post-Budget event in New Delhi.
While the states had demanded a compensation of Rs 19,060 crore (Rs 190.6 billion) for 2010-11, the Centre released Rs 6,393 crore (Rs 63.93 billion) against the same.
The ministry in January had told the state governments that no further compensation would be provided on account of phasing out of CST.
Gujral said GST was originally scheduled to come from April 1, 2011, and the compensation package to the states was decided after discussing with the Empowered Committee of State Finance Ministers.
"Whatever compensation which has been paid was agreed to by the empowered committee," Gujral said.
Acknowledging the financial stress being faced by the Centre, the Empowered Committee of State Finance Ministers had recently proposed that if CST compensation cannot be provided, than rate of levy should be doubled to 4 per cent.
GST would subsume levies like excise, service tax and states tax like value-added tax, entry tax and purchase tax.
While the GST Constitutional Amendment Bill is currently being studied by a Parliamentary Standing Committee, the structure of GST Network has been approved by the Empowered Committee of State Finance Ministers.
It will be set up as a National Information Utility and become operational by August 2012.
"In (regards to) GSTN we are moving very well. We are going to take the matter to Cabinet in next few weeks," Gujral said.
Later in the day, Standing Committee on Finance Chairman Yashwant Sinha said the panel would try to finalise its report on GST Bill at the earliest.