40. Central Excise Duties : Excise duties are ordinarily closely connected with customs duties and, barring liquor and drug excises, which we consider, should continue to remain provincial, are inherently not suited for provincial taxation. On the other hand, they are only a species of consumption taxes of which another species, namely, sales, turnover and purchase taxes have been the subject of provincial taxation for some time. The memoranda received by us from the Provincial Governments are almost unanimous in demanding some share under excises; and our problem is to find not only more resources for the units but to make their revenues more balanced. If it was possible to have excises on commodities not subject to Customs duties (whether revenue or protective) or not competing, or capable of competing with, or of substitution for, commodities subject to Customs duties, e.g., on rice or wheat or millets or on jute and jute goods consumed in India, we see no reason why such excises or a share thereof should not be allotted to the units, apart from the general political objection to the division of heads viz., the divorce of benefit from responsibility. But such excises are not likely to be levied. Again, it is obvious that Excise duties on commodities subject to a protective tariff or even a high revenue tariff could not be conveniently shared. In the circumstances, the utmost that we can suggest by way of assistance in this respect of the Provincial Governments is to hand over to them a share of one of the important Central Excises on a commodity not receiving tariff protection, viz., tobacco. Incidentally, the effective administration of this excise requires the active cooperation of Provincial Governments, which would be better forthcoming if they had a share in the tax. We are averse to giving the units a share in too many Central Excises; for, such an arrangement would not only magnify the political objection of benefit without responsibility but lead to administrative inconvenience, since the rates could not be altered except by the consent of all the beneficiaries.

We accordingly recommend that 50 per cent. of the net proceeds of the excise duty on tobacco should not form part of the revenues of the Federation but should be distributed to the provinces.