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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

Concept and Nature

Goods and Services Tax (GST) is a single, comprehensive indirect tax levied on the supply of goods and services right from the manufacturer/service provider to the consumer.
It is a destination-based consumption tax, meaning the tax accrues to the taxing authority with jurisdiction over the place of consumption (place of supply).
GST is levied at all stages of supply; credit for taxes paid at previous stages is available as a set-off (Input Tax Credit / ITC).
Only value addition is taxed at each stage, and the ultimate burden of the tax is borne by the final consumer.

Constitutional and Legislative Background

In 2016, the Indian Constitution was amended to empower both the Union Government and State Governments to enact laws to impose GST.
Specifically, the 101st Constitution Amendment Act received Presidential assent on 8 September 2016 and introduced Article 246A, cross-empowering Parliament and State Legislatures to make laws regarding GST.
Following the amendment, the CGST Act, SGST Acts, and UTGST Act were enacted.
GST was rolled out at midnight on 30 June / 1 July 2017 during a special midnight session of Parliament, covering the Centre, 28 states, and 7 Union Territories.

Dual GST Structure and Components

In keeping with India’s fiscal federalism, GST operates as a dual model where the Centre and States simultaneously levy tax on a common base.
Central GST (CGST): Levied and administered by the Central Government on intra-state supply, constituting Union revenue.
State GST (SGST): Levied and administered by State Governments on intra-state supply, constituting State revenue.
Integrated GST (IGST): Charged on inter-state transfers of goods and services, as well as on imports of goods and services. The revenue collected under IGST is divided between the Centre and the States as per specified rates.

Taxes Subsumed under GST

Central Taxes/Cesses Subsumed: Central Excise Duty, Additional Excise Duty, Special Excise Duty, Service Tax, Central Sales Tax (CST), and cesses such as KKC (Krishi Kalyan Cess) and SBC (Swachh Bharat Cess).
State Taxes/Cesses Subsumed: VAT/Sales Tax, Entry Tax, Luxury Tax, Octroi, Entertainment Tax, Taxes on Advertisements, Taxes on Lottery/Betting/Gambling, and State cesses on goods.

Exclusions and Special Treatments

Petroleum Products: Five petroleum products are temporarily kept outside GST and are to be subsumed over time.
Alcoholic Liquor: State Governments continue to levy VAT on alcoholic liquor for human consumption.
Tobacco and Tobacco Products: Attract both GST and Central Excise Duty.

Rate Structure

Under GST, six standard rates are applied across the country: 0%, 3%, 5%, 12%, 18%, and 28%. (Note: In the accounting text, the minimum number of floor rates is described as not exceeding two).

Objectives and Key Advantages

Single National Market: Creates “one nation, one tax, and one market” by establishing common laws, procedures, and standardized rates nationwide.
Elimination of Cascading Effect: Prevents the “tax on tax” common in the pre-GST regime by allowing comprehensive Input Tax Credit (ITC) along the entire supply chain.
Revenue and Compliance Expansion: Broadens the tax base, enhances revenue for both Centre and States, and lowers administrative costs.
Reduced Human Interface: Simplifies compliance via online digital services (registration, returns, payments) at www.gst.gov.in, enhancing transparency and ease of doing business.
Competitiveness and Growth: Lowers production and business operation costs, enhances manufacturing efficiency, increases export competitiveness globally, and is expected to boost GDP growth by about 2%.

Reference Ncert Link

https://ncert.nic.in/textbook/pdf/leec105.pdf