While BJP-ruled Maharashtra and Gujarat announced a 4 per cent VAT cut, the Congress-ruled Himachal Pradesh cut VAT by 1 per cent.
The net reduction in petrol and diesel prices will be around Rs 2.33 per litre and Rs 1.25 per litre respectively in Maharashtra, said All India Petrol Dealers Association spokesperson Ali Daruwala.
The move follows a communication from Finance Minister Arun Jaitley to all states to consider reducing state-level taxes on petrol and diesel products.
Mumbai Petroleum Dealers Association President Ravi Shinde said the current VAT in the state was around 26 per cent on petrol and 21 per cent on diesel, plus different cess totalling Rs 9 per litre.
This pushed up prices of petrol and diesel by nearly 50 per cent for every litre in the state.
"Our demand for reduction in cess on petrol and diesel products by the state government was rejected and we were informed that it is utilised to repay farm loans waiver package announced in June," Mr Daruwala told IANS.
With the VAT cut, the Maharashtra government is likely to suffer a loss of around Rs 2,500 crore.
Gujarat Chief Minister Vijay Rupani said after the VAT reduction, petrol price will slide by Rs 2.93 a litre and that of diesel by Rs 2.72 a litre.
The reduction comes after the state government cut prices of auto fuel by 60 paise soon after the Centre's decision to reduce basic excise duty by Rs 2 per litre from October 4.
Mr Rupani said the decision would put a burden of Rs 2,316 crore a year on the state exchequer. Gujarat annually earns Rs 12,000 crore by way of VAT on auto fuels.
Himachal Pradesh reduced the VAT by 1 percent. The decision was taken at a cabinet meeting chaired by Chief Minister Virbhadra Singh.
Himachal charges 27 per cent VAT on petrol and 16 per cent on diesel.
Gujarat Congress spokesperson Shaktisinh Gohil said the VAT cut was an eyewash in view of the forthcoming assembly elections.
"You looted people over not just last three-and-a-half years but in the last 22 years by not cutting taxes. Now that elections are near, you are talking of bringing down prices. If the BJP thinks it can fool the people, they are mistaken," he said.