15 January 2013
VAT is a form of Sales tax and imposed on intra- state sales. Since it is imposed only on the amount of value addition made, it is known a tax on value added or Value Added Tax (VAT). VAT prevents cascading effect of taxation by providing set-off/input credit paid at earlier stage. Cascading effect means imposition of tax on tax.
VAT has replaced only Local Intra State taxes levied at state level. Central Sales Tax (CST) governing inter state sales continues to be operational with effective rate of 2% or Local VAT rate whichever is lower.
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