constituent assembly of india debates (proceedings)- volume vii

udget nor effective audit, so that adequate and reliable information about their financial position, on a
basis permitting comparison with Provinces, is not available. We recommend accordingly that it should
be made obligatory within as short a period as possible for each State to arrange for the preparation and
authorisation of a periodical budget and the maintenance of proper accounts and audit and to send
copies of its budget, accounts and audit reports to the Union Government.
87. In the absence of sufficient data, we are not in a position to make recommendations other than of
a general nature. We are clear in our mind that the States should gradually develop all the taxes in the
Provincial legislative List so that they may correspondingly give up reliance on taxes in the Federal
Legislative List. This process however would necessarily take some time and in the meanwhile it will be
necessary to have transitional arrangements.
88. We will now take up Land Customs. We do not recommend the immediate abolition of Land
Customs, for we find that such a course would lead to a serious dislocation in the finances of many
States. Moreover, where there is no large re-export trade, these land customs, though a possible source
of annoyance, are really of the nature of octroi duty levied at a few point of entry. On a long view,
however, in the interests of the States themselves, these duties might be replaced by other taxes, such
as sales and turn-over taxes. We recommend accordingly that Land Customs now levied by the States
should be abolished during the next 10 years. As a first step it may be arranged that--
(1) a State shall not in future levy land customs on a commodity on which
there is no such duty now;
(2) a State shall not after a fixed date, increase the rate on any commodity;
and
(3) a State levying land customs should grant refunds on re-exports.
Gradual abolition over a period of 10 years should not cause any serious dislocation to the finances of
these States, nor can there be any question of paying any compensation to these States, for the simple
reasons that the Union Government will not gain any corresponding revenue.
89. Maritime customs should be uniform all through the Union, and the Federal Government should
take over the administration of such customs in all the maritime States. If this arrangement results in
the loss of any State of the revenue now enjoyed by it, it is only fair that the State should be
compensated for the loss. Pending determination of the appropriate compensation in each case by a
States Commission, the appointment of which we recommend in a later paragraph, each State may be
given an annual grant equal to the average revenue from this source during the last three years. The
right of Kashmir to a rebate on sea customs maybe similarly abolished on payment of a similar grant.
90. The Federal Government may levy Central Excises in all the States, but those States which now
enjoy the benefit of a part or the whole of these revenues raised in their areas should, in lieu of such
benefit, receive grants on the basis of the average revenue enjoyed by them from these sources during
the last three years. In our opinion, neither this arrangement nor the one referred to in the foregoing
paragraph should present any difficulty from the purely financial point of view either to the Union or to
the States.
91. The Indian Income-Tax Act, with such modification as may be considered necessary by the
President, may be applied to all the Federating States. The net proceeds of the tax attributed to the
States may be credited to a States Income-Tax Pool and such portion not being less than 75 percent of
the net proceeds attributable to each State, as determined by the President, may be paid back to the