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 points 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 ten 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 exports.

Gradual abolition over a period of ten 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 reason that the Union Government will not gain any corresponding revenue.