SSC Stenographer 2026 PYQ — Question 12

Solution: The correct answer is VAT introduced a multi-point taxation system that minimized the cascading effect of taxes and promoted input tax credit across the supply chain.
Explanation:
☛ Prior to the introduction of VAT, India followed a traditional sales tax regime where taxes were levied on the total value of goods at a single point or multiple points without tax credit, causing a cascading effect (tax on tax).
☛ Value Added Tax (VAT) was introduced as a multi-stage consumption tax levied only on the value added at each stage of the supply chain.
☛ Under VAT, businesses received an Input Tax Credit (ITC) for taxes paid on inputs, preventing double taxation and lowering the final burden on consumers.
☛ This system enhanced tax compliance, brought transparency, eliminated trade barriers between states, and established a foundation for a unified market.
Extra Exam-Relevant Facts:
☛ Haryana became the first Indian state to implement VAT in the year 2003.
☛ Most Indian states implemented state-level VAT on 1 April 2005 under the guidance of the Empowered Committee of State Finance Ministers chaired by Asim Dasgupta.
☛ VAT was a state-level indirect tax levied on the sale of goods and governed by respective state legislations.
☛ On 1 July 2017, the Goods and Services Tax (GST) subsumed state VAT along with several other central and state indirect taxes.
Important One-Liners for Upcoming Exams:
☛ Which was the first state in India to implement Value Added Tax (VAT)? → Haryana (in 2003)
☛ Which was the last Indian state to implement VAT? → Uttar Pradesh (in 2008)
☛ Who headed the Empowered Committee of State Finance Ministers that designed state VAT? → Dr. Asim Dasgupta
☛ What mechanism in the VAT system prevents the cascading effect of taxation? → Input Tax Credit (ITC)
☛ Which major indirect tax reform replaced state VAT and Central Excise in India on 1 July 2017? → Goods and Services Tax (GST)