Companies dealing in tobacco, textiles and sugar products will need to register again with the state tax departments once the transition to value-added tax takes place.

Companies like ITC, Godfrey Phillips, VST, Modi Sugar, Madura Garments and Arvind Mills have been paying additional excise duty in lieu of sales tax to the Centre and are at present registered with the Centre's excise department.

As part of the Centre's compensation package, states will be allowed to levy VAT on these three items following their transition to the new tax regime.

Apart from these, states will also have to register select service providers that can now be taxed under the VAT regime.

While registration of service providers by state governments is expected to take time, the AED dealers are expected to be registered during the first year of the transition to the VAT regime.

According to the VAT implementation schedule, all existing sales tax dealers will automatically be registered as VAT dealers while AED dealers and service providers will be the new addition to the dealers' list of the state revenue department.

In order to allow states to tax the AED items, the Centre has already moved the AED (goods of special importance) Act as part of the Finance Bill, 2003.

Once the Bill is passed, states will be allowed to tax the three items directly. Till now, the Centre levied a tax on these commodities and passed on the proceeds to the states.

AED was initially levied by the central government in 1957 on textiles, sugar and tobacco in lieu of sales tax on these commodities.

The objective was to maintain a uniform rate of tax on these products. This move is expected to net a larger tax revenue for the states.