Explanation:

Value-added tax (VAT)

• It is a type of indirect tax levied on goods and services for value-added at every point of the production or distribution cycle, starting from raw materials and going all the way to the final retail purchase.

• VAT was introduced on April 1, 2005.

• Under it, the amount of value addition is first identified at each stage, and then tax is levied on the same.

• Ultimately, the end consumer has to pay the complete VAT while buying goods; buyers at earlier stages of production receive reimbursements for tax they have paid. Because the consumer bears the entire tax, VAT is also a consumption tax.

• Each state has its own VAT laws for proper implementation and levying. Different states apply different VAT rates according to their implied laws.

• VAT, being a 'tax on sale or purchase of goods within a State' is a State Subject by virtue of Entry 54 of State List of the Seventh Schedule of the Constitution of India. Since VAT/Sales tax is a State subject, the Central Government has been playing the role of a facilitator for the successful implementation of VAT. Hence, option 4 is not correct.

• The main aim behind the introduction of VAT was to eliminate the presence of double taxation and the cascading effect of the then-existing sales tax structure.

• A cascading effect is when there is a tax levied on a product at every step of the sale.

• The tax is levied on a value that includes tax paid by the previous buyer, so the consumer ends up paying tax on already-paid tax.