Explanation:

Production of goods or services is nothing our stages of value additions where production of goods is done by the industrialists or manufacturers. From production to the level of sale, there are many points where value is added in all goods. VAT method of tax collection is different from the non-VAT method in the sense that it is imposed and collected at different points of value addition chain, i.e., multi-point tax collection. That is why there is no chance of imposing tax upon tax which takes place in the non-VAT method—single point tax collection. This is why VAT does not have a cascading effect’ on the prices of goods it does not increase inflation— and is therefore suitable for an economy like India.