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In simple terms, ?value added' means difference between selling price and purchase price. VAT avoids cascading effect of a tax.
Basically, VAT is multi-point tax, with provision for granting set off (credit) of the tax paid at the earlier stage. Thus, tax burden is passed on when goods are sold. This process continues till goods are finally consumed. Hence, VAT is termed as ?consumption type' tax. VAT works on the principle of ?tax credit system'.
Generally, any tax is related to selling price of product. In modern production technology, raw material passes through various stages and processes till it reaches the ultimate stage e...
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