The introduction of Central VAT (Cenvat) had removed the cascading burden of ‘tax on tax’ to a large extent by providing a mechanism of set off for the tax paid or inputs and services up to the stage of production. Similarly, the introduction of VAT in the states had removed the cascading effect by giving a set-off for tax paid on inputs as well as tax paid on previous purchases.
However, both Cenvat and state VAT have certain deficiencies. Cenvat did not include the chain of value addition in the distributive trade below the stage of production. It did not also include several central taxes, such as additional excise duties, additional customs duty, and surcharges.
Introduction of goods and services tax (GST) will not only include other indirect central taxes and integrate goods and services taxes for set-off relief, but also capture certain value additions in the distributive trade.
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ViaBenefits for small units and trade – Financial Express.