Fiscal Policy & Revenue (Part – Iv)

31. Modvat is related to: [B.P.S.C. (Pre) 2008]

(a) Sales Tax
(b) Wealth Tax
(c) Income Tax
(d) Excise Duty

Correct Answer: (d) Excise Duty

Solution:MODVAT (Modified Value Added Tax) is basically related to the excise duties. In the mid 1980s, the excise duty reforms focused on relieving tax cascading, rationalization of duty rates, and simplification of rules and procedures. As a first step towards mitigating tax cascading, MODVAT was incorporated in the Indian tax system in the year 1986, covering a few limited commodities initially. This permitted the manufacturers to avail of tax credit for the excise duty paid on their purchase of specified raw materials (and not capital goods) used in the manufacturing of specified goods. After being in force for around 15 years, MODVAT was replaced by CENVAT (Central Value Added Tax) from 1 April 2000. MODVAT/CENVAT is different from the VAT as under MODVAT/CENVAT, excise is levied on final value and then rebate is given on inputs while under VAT, tax is levied on value addition at each stage of transaction in the production-distribution chain.

32. CENVAT is related with: [U.P.P.C.S. (Spl.) (Mains) 2004, U.P.P.C.S. (Mains) 2008]

(a) Custom Duties
(b) Value Added Tax
(c) Union Excise Duties
(d) Central Sales Tax

Correct Answer: (c) Union Excise Duties

Solution:MODVAT (Modified Value Added Tax) is basically related to the excise duties. In the mid 1980s, the excise duty reforms focused on relieving tax cascading, rationalization of duty rates, and simplification of rules and procedures. As a first step towards mitigating tax cascading, MODVAT was incorporated in the Indian tax system in the year 1986, covering a few limited commodities initially. This permitted the manufacturers to avail of tax credit for the excise duty paid on their purchase of specified raw materials (and not capital goods) used in the manufacturing of specified goods. After being in force for around 15 years, MODVAT was replaced by CENVAT (Central Value Added Tax) from 1 April 2000. MODVAT/CENVAT is different from the VAT as under MODVAT/CENVAT, excise is levied on final value and then rebate is given on inputs while under VAT, tax is levied on value addition at each stage of transaction in the production-distribution chain.

33. Which one of the following is not a feature of 'Value Added Tax'? [I.A.S. (Pre) 2011]

(a) It is a multi-point destination based system of taxation.
(b) It is a tax levied on value addition at each stage of transaction in the production-distribution chai
(c) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer.
(d) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation.

Correct Answer: (d) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation.

Solution:The main objective behind the introduction of VAT (Value Added Tax) was to eliminate the presence of double taxation, and the cascading effect from the then existing sales tax structure. The features of VAT are: (i) It is a tax levied on value addition at each stage of transaction in the production-distribution chain. (ii) It is a multi-point destination based system of taxation. (iii) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer. VAT was introduced into the Indian taxation system from 1 April, 2005. Each State has its own VAT laws for proper implementation and levying of VAT. To completely eliminate the cascading affect of taxes and to make the indirect tax structure simpler, the Central Government introduced the Goods and Services Tax (GST) in July, 2017. Some goods are still not covered under the GST. VAT continues to be the tax levied on such goods.

34. VAT is imposed : [UPPCS (Mains) 2006, 2012]

(a) Directly on consumer
(b) On final stage of production
(c) On first stage of production
(d) On all stages between production and final sale

Correct Answer: (d) On all stages between production and final sale

Solution:The main objective behind the introduction of VAT (Value Added Tax) was to eliminate the presence of double taxation, and the cascading effect from the then existing sales tax structure. The features of VAT are: (i) It is a tax levied on value addition at each stage of transaction in the production-distribution chain. (ii) It is a multi-point destination based system of taxation. (iii) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer. VAT was introduced into the Indian taxation system from 1 April, 2005. Each State has its own VAT laws for proper implementation and levying of VAT. To completely eliminate the cascading affect of taxes and to make the indirect tax structure simpler, the Central Government introduced the Goods and Services Tax (GST) in July, 2017. Some goods are still not covered under the GST. VAT continues to be the tax levied on such goods.

35. Which of the following state have not introduced VAT system? Select the correct answer from the code given below: [U.P.P.C.S. (Pre) 2005]

1. Andhra Pradesh

2. Chhattisgarh

3. Maharashtra

4. Uttar Pradesh

Code:

(a) 1 and 2
(b) 2 and 3
(c) 1 and 4
(d) 2 and 4

Correct Answer: (d) 2 and 4

Solution:As per the question period, option (d) was the correct answer. On April 01, 2005, Value Added Tax (VAT) was introduced by the Government of India on the recommendation of the Report of the Indirect Taxation Enquiry Committee, 1978 (Chairman-L.K. Jha). The VAT proved to be inherently efficient relative to the sales tax or excise duty or any turnover tax as it minimised tax evasion with an in-built mechanism of multi-stage tax distribution and a cross-auditing practice. While a few States (Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu and Uttar Pradesh) opted to stay out of VAT during the initial years, all States adopted it by 2008. Among the States, Uttar Pradesh was the last State to introduce VAT in 2008, while Haryana 11 was the first in April, 2003.

36. Number of States, which have not implemented 'Value Added Tax' in India upto December 2005 is: [U.P.P.C.S. (SPL) (Mains) 2004]

(a) 7
(b) 8
(c) 9
(d) 10

Correct Answer: (a) 7

Solution:On April 01, 2005, Value Added Tax (VAT) was introduced by the Government of India on the recommendation of the Report of the Indirect Taxation Enquiry Committee, 1978 (Chairman-L.K. Jha). The VAT proved to be inherently efficient relative to the sales tax or excise duty or any turnover tax as it minimised tax evasion with an in-built mechanism of multi-stage tax distribution and a cross-auditing practice. While a few States (Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu and Uttar Pradesh) opted to stay out of VAT during the initial years, all States adopted it by 2008. Among the States, Uttar Pradesh was the last State to introduce VAT in 2008, while Haryana 11 was the first in April, 2003.

37. Value Added Tax was first introduced in India in: [U.P.P.C.S. (Mains) 2015]

(a) 2007
(b) 2006
(c) 2005
(d) 2008

Solution:On April 01, 2005, Value Added Tax (VAT) was introduced by the Government of India on the recommendation of the Report of the Indirect Taxation Enquiry Committee, 1978 (Chairman-L.K. Jha). The VAT proved to be inherently efficient relative to the sales tax or excise duty or any turnover tax as it minimised tax evasion with an in-built mechanism of multi-stage tax distribution and a cross-auditing practice. While a few States (Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu and Uttar Pradesh) opted to stay out of VAT during the initial years, all States adopted it by 2008. Among the States, Uttar Pradesh was the last State to introduce VAT in 2008, while Haryana 11 was the first in April, 2003.

38. In which State in India Value Added Tax first time applied? [Jharkhand P.C.S. (Pre) 2011]

(a) Jharkhand
(b) Delhi
(c) Haryana
(d) Goa

Correct Answer: (c) Haryana

Solution:On April 01, 2005, Value Added Tax (VAT) was introduced by the Government of India on the recommendation of the Report of the Indirect Taxation Enquiry Committee, 1978 (Chairman-L.K. Jha). The VAT proved to be inherently efficient relative to the sales tax or excise duty or any turnover tax as it minimised tax evasion with an in-built mechanism of multi-stage tax distribution and a cross-auditing practice. While a few States (Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Jharkhand, Tamil Nadu and Uttar Pradesh) opted to stay out of VAT during the initial years, all States adopted it by 2008. Among the States, Uttar Pradesh was the last State to introduce VAT in 2008, while Haryana 11 was the first in April, 2003.

39. In which States/Union territories Sales tax is not levied? [M.P.P.C.S. (Pre) 2006*]

(a) Andaman & Nicobar and Lakshadweep
(b) Pondicherry
(c) Goa, Arunachal Pradesh
(d) Sales Tax is levied in all the States and Union Territories

Correct Answer: (a) Andaman & Nicobar and Lakshadweep

Solution:In the question period, Sales tax was not levied in the Union Territory of Andman & Nicobar and Lakshadweep. Since 1 July, 2017 GST has been applied to entire India.

Features of Goods and Services Tax

Applicable on Supply: Under the GST regime, a taxable event is the 'supply' of Goods and Services, and not manufacturing, sales, etc.
In other words, Goods and Services Tax is applicable to the 'supply' of goods or services. As opposed to the old indirect taxation regime, events like manufacturing, sales, etc do not matter now.
Consumption-based Tax: It is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
Therefore, it is paid to the state where the goods and services are finally consumed, and not the state in which they are produced.
Dual Goods and Services Tax Model: India has adopted a Dual GST Model, with the Centre and the States simultaneously levying tax on a common tax base.
Four Components: Under the Dual GST Model implemented in India, the GST has a total of 4 components - Central GST (CGST), State GST (SGST), Union Territories GST (UTGST), and Integrated GST (IGST).
These four components have been explained in detail in the section below.
Mutual Decision on Tax Rates: CGST, SGST, UTGST, and IGST are levied at rates to be mutually agreed upon by the Centre and the States.
These rates are notified on the recommendation of the GST Council.
Multiple Rates: Tax rates for different categories of goods and services are different. At present, there are a total of 7 tax-rate slabs for various goods and a total of 5 tax-rate slabs for various services.
Exemptions: Businesses upto a certain level of turnover are exempted from GST. The turnover limit for exemption for various categories of businesses is as follows:

40. When was the Wealth tax first introduced in India? [M.P.P.C.S. (Pre) 2006]

(a) 1991
(b) 1976
(c) 1957
(d) 1948

Solution:The Government of India introduced the Wealth tax upon the richer strata of the society through the Wealth Tax Act, 1957. But since the application of this tax was more expensive than the benefits derived, the act was abolished by the Union Budget 2015-16. Wealth tax was replaced by a sur- charge upon the income of high net worth individuals, HUFs (Hindu Undivided Families) and corporates.