CBSE Class 8 Answered
Suppose A is a manufacturer, B is a dealer and C is a retailer and D is a customer.
A sells an item to B at Rs.100 and tax rate is 10%
At this point B pays Rs.100 + the tax(10)=Rs.110 to A.
Now suppose B sells this item at Rs.200 and tax rate is 10% to C.
At this point C pays Rs.200 + the tax(20)=Rs.220 to B.
Now suppose C sells this item at Rs.300 and tax rate is 10% to D.
At this point D pays Rs.300+the tax(30) = Rs.330 to C.
The first tax paid by B Rs.10 is called as Service tax.
Now the tax paid by C -tax paid by B = VAT for that transaction.=20-10=10
Now the tax paid by D -tax paid by C = VAT for that transaction.=30-20=10
VAT=Tax on sale-Tax on purchase
Total VAT=addition of VAT for all the transactions.
VAT is a value added tax