With 17 states ready with Value-Added Tax bills, Finance Minister P Chidambaram on Thursday promised to fully compensate states in the first year of introduction of VAT scheduled in April, 2005.

"I am very happy to say that we are on the right path and proceeding at the right pace. 17 states have their VAT bills ready... All is going well, we hope to introduce VAT by April, 2005," Chidambaram told reporters after a meeting with the state finance ministers in New Delhi.

He said there were broad discussions on compensation, additional excise duties (AED) on some items, phasing out of central sales tax, technical assistance to states and tax information network system TINXSYS. "There is a broad consensus on all these items," he said.

Satisfied with the progress of states on VAT, Chidambaram said all the states are expected to be ready with their VAT bills by November this year.

The VAT bills, after getting approved from the respective state assemblies, would be sent to the Union finance ministry and the law ministry and finally to the President for his assent.

Chidambaram said Madhya Pradesh had already obtained President's nod while four states have sent their papers and other were processing it.

Terming Thursday's meeting as 'fruitful,' Dasgupta said: "In a mould of cooperative federalism, we may succeed in VAT implementation by April 2005."

However, he said the Centre would have to come out with a compensation formula when VAT is introduced, based on the growth in revenue of states taking 2004-05 as the base year.

Regarding CST, he said the Centre would fully compensate for the CST phase-out in the first and second years of VAT introduction and there would be a review in the third year.

While maintaining that the Centre expects no major revenue loss of states after switchover to VAT, Chidambaram said: "There are one or two cliches which have to be ironed out."

Asked about Uttar Pradesh, which has been apprehensive about implementing VAT, Chidambaram said: "There is no philosophical difference with UP, it is only practical problems."

Chidambaram and Dasgupta will meet UP Chief Minister Mulayam Singh Yadav in October to iron out differences.

Encouraging the states to go in for tax reform that is expected to raise their revenues by 20 per cent, Chidambaram outlined the need for a modern and efficient tax structure across the country.

During the meeting, Dasgupta made a detailed presentation on various aspects.

States have broadly agreed on the VAT rate on 500 items. It was agreed by states that 250 essential commodities and manufacturing inputs would attract a 4 per cent tax while 217 other items are expected to attract 12.5 per cent tax.