Classification and Jurisdiction
- Value Added Tax (VAT) is categorized as an indirect tax levied by State Governments.
- It fell under the state-level tax structure along with other local levies such as entry tax, octroi, and luxury tax.
- Government and regulatory agencies rely on accounting and financial information of enterprises to verify and enforce the payment of taxes, including VAT.
Pre-GST Role and Limitations
- Prior to GST, VAT was associated with the sales tax regime (often referred to as VAT/Sales Tax).
- In the pre-GST framework, taxes were imposed on the total value of commodities/services rather than purely on the value added at each stage, as there was minimal facility for utilizing Input Tax Credit (ITC).
- Because the total taxable value included taxes already paid on intermediate goods and services, the system resulted in the cascading of taxes (tax-on-tax).
Subsumption under GST
- Under the indirect tax reforms, state-level VAT/Sales Tax was subsumed and replaced by the Goods and Services Tax (GST).
- Under the dual GST structure, state-level taxes including VAT were merged into State Goods and Services Tax (SGST).
- This reform aimed to eliminate cascading tax effects, extend the principles of value-added taxation across all goods and services, and establish parity in nationwide taxation.
Post-GST Status and Exceptions
- State Governments continue to hold the power to levy VAT specifically on alcoholic liquor for human consumption.
- Five petroleum products were temporarily kept out of the GST regime (to be subsumed over time), continuing under existing tax structures.
Reference Ncert Document
https://ncert.nic.in/textbook/pdf/leec105.pdf
https://ncert.nic.in/textbook/pdf/keac101.pdf
