VAT is the indirect tax on the consumption of the goods, paid by its original producers upon the

change in goods or upon the transfer of the goods to its ultimate consumers. It is based on the
value of the goods, added by the transferor. It is the tax in relation to the difference of the value
added by the transferor and not just a profit.

All over the world, VAT is payable on the goods and services as they form a part of national
GDP. It means every seller of goods and service provider charges the tax after availing the input
tax credit. It is the form of collecting sales tax under which tax is collected in each stage on the
value added of the goods. In practice, the dealer charges the tax on the full price of the goods,
sold to the consumer and at every end of the tax period reduces the tax collected on sale and tax
charged to him by the dealers from whom he purchased the goods and deposits such amount of
tax in government treasury.

Method of Collection

There are two methods for collection of VAT in India. In the first method, tax is charged
separately on the basis of the tax which is paid on purchase, and the tax that is payable on the
sale (shown separately in the invoice). Therefore, the difference between the tax paid on
purchase and the tax payable on sale as per the invoice is the VAT.

In the second method, tax is collected and charged on the aggregate value of the tax payable on
sale and purchase, by applying the rate of tax applicable to the goods. Therefore, the difference
between the sale price and purchase price would be VAT. It means VAT is the tax which
consumers ultimately face, which is collected at each stage.

Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the
first time. If the product is sold subsequently without being processed further, it is exempt from
sales tax.

Sales Tax is a levy on purchase and sale of goods in India and is levied under the authority of
both Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax).
The government levies Sales Tax principally on intra-state sale of goods. States also levy tax on
transactions which are “deemed sales” like works contracts and leases.

In addition to Sales Tax, some states also levy additional tax, surcharge, turnover tax and the
like. Ordinarily, Sales tax is recovered from the buyer as a part of consideration for sale of
goods.

Sales tax is paid by every dealer on the sale of any goods made by him in the course of inter-state
trade or commerce, despite the fact that no liability to tax is raised on the sale of goods under the
tax laws of the appropriate state.