In yet another blow to the Centre's plans on the proposed GST, the states today categorically stated that petroleum products will be out of the proposed indirect tax regime, even as the Centre pressed for the same saying such a move can check wild volatility in fuel prices.

"Petroleum products will be out of the GST," empowered committee of state finance ministers chairman Asim Dasgupta said here today.

Addressing the Lok Sabha yesterday, Finance Minister Pranab Mukherjee had called for the inclusion of petroleum products in proposed goods and services tax (GST) so that sharp domestic price movements can be checked.

"If we receive cooperation from all houses concerned and introduce GST and bring within its purview petrol and other petroleum products, and with your support introduce it from April 2011, I do feel the type of variations in petroleum prices can be taken care of," Mukherjee had said.

Mukherjee repeated the request in the Rajya Sabha today.

In fact, even some of the Congress states are also in favour of keeping oil products out the GST regime.

Recently, Delhi finance minister AK Walia had said he would request the empowered panel and the Centre to keep diesel, petrol, and CNG out of the new indirect tax regime, saying keeping oil products and CNG under GST will result in financial losses to the city government that is already facing fund crunch due to the huge spend on the Commonwealth Games.

In fact, a discussion paper floated by the empowered committee also talked about keeping the petroleum products out of the purview of the GST.

"As far as petroleum products are concerned, it was decided that the basket of petroleum products, crude, motor spirit (including ATF) and HSD (high speed diesel) would be kept outside GST," the paper said. In fact, petroleum products are outside even the state-level VAT.

The discussion paper had said that "sales tax could continue to be levied by the states on these products with prevailing floor rate. Similarly, the Centre could also continue its levies."

It also said a final view whether natural gas should be kept outside the GST ambit will be taken after further deliberations.

The empowered committee's decision is yet another blow to the Centre's plans over the proposed GST. Yesterday, the states had rejected the draft constitutional bill to roll out GST, a opposing the veto power of the Union finance minister over state taxation issues.

The Centre has proposed a three tier-rate structure for GST--20 and 12 per cent for goods and 16 per cent for services. GST is slated to be introduced from next fiscal, after the earlier deadline of implementing it from this fiscal was missed.