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Concept of Value Added Tax (VAT) Value Added Tax (VAT) is an indirect tax imposed on the value added to goods at each stage of production or distribution. In simple words, VAT is charged every time value is increased in a product — from manufacturer → wholesaler → retailer → final consumer. The final burden of VAT is borne by the ultimate consumer , but it is collected at every stage. In India, VAT was introduced at the State level in 2005 to replace the old Sales Tax system. Later, VAT was largely subsumed into GST (Goods and Services Tax) in 2017 , but VAT still applies to some goods like petroleum products and alcohol for human consumption. Meaning of “Value Added” Value Added = Sale Price – Purchase Price Example: Manufacturer buys raw material for ₹100 Sells finished goods for ₹150 Value added = ₹50 VAT is charged only on ₹50 (not ₹150) This prevents tax on tax (cascading effect) . Constitutional Background Before GST, VAT was imposed by States under: Artic...