Report No. 61
Evasion by Reason of Non-Taxation
2.3. Fifth Finance Commission's recommendations.-
The problem does not appear to be totally new. The Fifth Finance Commission had made the following observations1 in this regard:
"8.32. The Uttar Pradesh Taxation Enquiry Committee has also remarked that in many cases transactions shown as consignments and works contracts, which are not liable to States' sales taxation, were not genuine and that they were manipulated to hide the real nature of sales transactions. It is desirable that the Government of India as well as State Governments may consider what measures should be devised to meet this situation."
1. Fifth Finance Commission, Report, p. 89, para. 8.32.
It appears that States are faced with erosion of the revenue, occurring through transfers on a consignment basis.