Read the following statements:
Statement I: Before GST, many taxes were imposed on the total value of a commodity, which included the taxes already paid on intermediate goods.
Statement II: GST is in effect a tax on the total value of the commodity at each stage of supply.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: Before GST, many taxes were imposed on the total value of a commodity, which included the taxes already paid on intermediate goods. — True. Tax was paid again on taxes already paid. This is cascading of tax.
Statement II: GST is in effect a tax on the total value of the commodity at each stage of supply. — False. Credit for tax paid at the earlier stage is set off, so GST is a tax on value addition at each stage.
NCERT (2026-27): “Box 5.3: GST: One Nation, One Tax, One Market … As there have been a number of intermediate goods/services, which were manufactured/provided in the economy, the pre GST tax regime imposed taxes not on the value added at each stage but on the total value of the commodity/service with minimal facility of utilisation of Input Tax Credit (ITC). The total value included taxes paid on intermediate goods/services. This amounted to cascading of tax. Under GST, the tax is discharged at every stage of supply and the credit of tax paid at the previous stage is available for set off at the next stage of supply of goods and/or services. It is thus effectively a tax on value addition at each stage of supply. …” |