The Empowered Committee of State Finance Ministers have recommended to keep the above products outside GST structure to protect the high tax revenue generated by these products to the central and state governments.

While the current tax rates on these products are very high, the GST rates are expected to be moderate.

"Out of the basket of petroleum products, crude, motor spirit including aviation turbine fuel, and HSD may be kept outside GST, as is the prevailing practice in India," the Committee decided in a meeting last week.

So, the Empowered Committee has accordingly modified the draft GST road map prepared by a joint working group.

The modified draft guideline along with GST rates at both central and state levels, will be submitted to Union Finance Minister P Chidambaram by the end of January for consideration.

Currently, alcohol is taxed by states only at a floor rate of 20 per cent, but the rates could be as high as 36 per cent. It is a good source of revenue for many states. "Considering requirements of several states, alcoholic beverages may not be brought under GST," the Committee decided. There is no central excise on liquor.

The working group had suggested to bring crude, petrol, diesel and alcohol under the GST framework with input tax credit and an additional tax over and above the GST at central and state level without input tax credit.

The other option suggested by the panel was to keep all these outside GST structure.

On taxation of tobacco, the Empowered Committee has made slight modifications. While sticking to the recommendation to keep tobacco products under the GST with input tax credit, it has decided to allow only the Centre to levy excise duty on tobacco products over and above GST without input tax credit to ensure that its revenues are not impacted.

Tobacco is taxed at 12.5 per cent at the state level, while the Centre levies excise duty on tobacco at various rates or composite schemes.

The Committee, which had recommended that exports should be zero-rated, has agreed to provide similar benefits to special economic zones (SEZs).

However, such benefits should only be allowed to the processing zones of SEZs. No benefit to the sales made from a SEZ to Domestic Tariff Area should be allowed, it said in the recommendation.

The Committee has also taken a stand that both the Centre and states would have to discontinue area and industry-based tax incentives. After GST introduction, exemption schemes, if any, should be converted into cash refund schemes after collection of tax.

The burden of incentives must fall on a particular state or the central government, while schemes remain unaffected.

All states have discontinued incentive schemes for industries with effect from 2000. However, incentives granted earlier have continued.

Similarly, the central government needs to discontinue the practice of area- and industry-based tax incentives.

Timeline for GST implementation by April 2010

January 2008: Final draft GST road map to be sent to GoI

February 2008: GoI to consider road map and adopt it

March 2008- February 2009: Various amendments to Constitution by GoI

April 2008 - March 2009: Preparatory measures

March 2009 - February 2010: Legislative measures by central and state governments

April 2009-March 2010: Other measures like publicity and training

April 2010: GST implementation