Taxation: Excise Duty, VAT and GST Fundamentals
What this domain tests
This section tests indirect-tax concepts: taxable event, incidence, input tax credit, VAT chain, and the GST dual model. Punjab-specific links are the Punjab Value Added Tax Act, 2005 and the Punjab Goods and Services Tax Act, 2017.
Core rules
- Indirect tax is shifted to the consumer; the dealer collects and remits it.
- VAT taxes value added at each stage and allows credit for tax on inputs, avoiding cascading.
- GST is a destination-based dual tax: CGST plus SGST on intra-state supply; IGST on inter-state supply. The GST Council is constituted under Article 279A.
- ITC requires a tax invoice, receipt of goods or services, payment of tax, and a valid return. Blocked credits under Section 17(5) include many motor vehicles, club memberships, and works contracts for immovable property.
- Composition dealers cannot collect GST or pass ITC. Exempt supply is not the same as zero-rated supply.
- Excise duty continues on alcoholic liquor for human consumption; petroleum products remain outside GST for now.
Worked example
A trader buys goods for ₹100 and pays 10% VAT (₹10). He sells for ₹150 and charges 10% VAT (₹15). Output tax ₹15 minus input credit ₹10 = ₹5 payable. The ₹5 is tax on the ₹50 value added. Under GST the same credit logic applies.
Traps that cost marks
- Calling GST a direct tax.
- Claiming ITC on blocked or personal-use items.
- Confusing exemption with zero-rating.
- Forgetting that the threshold is based on aggregate turnover, not profit.
Exam focus
Trace the invoice chain and identify who bears the tax and who remits it.