Application of Value Added Tax (VAT) in India in the Field of Indirect Taxation and Reasons for Introducing GST
Application of Value Added Tax (VAT) in India in the Field of Indirect Taxation and Reasons for Introducing GST – Detailed Analysis (LL.B Exam Perspective, Easy Language) PART–I : APPLICATION OF VALUE ADDED TAX (VAT) IN INDIA 1. Meaning of VAT Value Added Tax (VAT) is a multi-stage indirect tax imposed on the value added at each stage of production or distribution of goods. It is a tax on sale of goods , where tax is collected at every stage but credit is given for tax already paid on inputs. Simple Example: Manufacturer → Wholesaler → Retailer → Consumer Each stage pays tax only on value added , not on total value. 2. Background of VAT in India Before VAT, India followed the Sales Tax system , which had serious defects like: Cascading effect (tax on tax) Different tax rates in different States No uniformity No input tax credit To remove these problems, VAT was introduced in India in 2005 at the State level. VAT replaced: State Sales Tax Turnover Tax Purchase T...