GST: Preventing Tax Cascading with ITC

The question asks about the tax mechanism that uses an uninterrupted and seamless chain of Input Tax Credit (ITC) to avoid the cascading of taxes. Cascading taxes refer to a situation where taxes are levied multiple times on the same goods or services, increasing the final cost.

Let's analyze the options:

• Angel Tax: This tax applies to investments made by unlisted companies in certain cases. It does not involve a chain of credit for taxes paid on inputs.
• Equalisation Levy: This is a tax imposed on specific digital services provided by non-residents. It is a direct tax on the revenue generated from these services and does not have an ITC mechanism.
• Countervailing Duty (CVD): This is a type of customs duty imposed on imported goods to counteract subsidies provided by the exporting country. While it's an indirect tax, it's applied at the point of import and doesn't feature the seamless ITC chain for domestic value addition.
• GST (Goods and Services Tax): GST is a comprehensive indirect tax that has a well-defined mechanism for Input Tax Credit (ITC). Under GST, businesses can claim credit for the taxes paid on inputs (goods or services used in their business) against the tax liability on their output (goods or services supplied). This ITC can be seamlessly transferred from one stage to the next in the supply chain. For example, a manufacturer pays GST on raw materials, claims ITC for it when paying GST on finished goods, and the wholesaler/retailer does the same. This prevents the 'tax on tax' effect, effectively avoiding cascading taxes.

Therefore, the GST system is designed specifically to avoid cascading of taxes through its uninterrupted and seamless chain of Input Tax Credit (ITC).