INTRODUCTION

Value Added Tax or VAT as it is commonly referred to, is a method of taxation whereby the tax is levied on the value added at each stage of the production/distribution chain. As against the earlier regime under which goods were charged tax at Single point, or multi-point on the value of the goods, without any credit being given for duties paid at the preceding stages, VAT proposes to tax only the value added at each stage, and not the entire invoice value of the product. By ensuring that only the incremental value is taxed, VAT aims at eliminating the Cascading effect of taxes on commodities, and thereby reduce the eventual cost to the consumer.

Before we discuss further about VAT and its features, it would be instructive to have a brief look at the global and historical perspective on VAT.

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