In the interest of clear thinking, I am writing this treatise on GST which is one of the most topical subjects.

The immediate provocation for my writing this article is that when I met many senior people in the private sector recently, I found that there was a lot of vagueness in their minds about the true nature of

Turnover tax, VAT and GST. Also I found, the same lack of clarity in the minds of the teachers of general economic theories in higher institutions. I found some court judgements to suffer from lack of clarity.

Many countries call this system VAT and some others call it GST. In Canada, Australia, Singapore and New Zealand it is called GST.

On my visit to Canada, when I enquired of a junior officer of the Finance Ministry how their VAT was doing, he replied that there was no VAT in Canada. He added, there was GST in the country.

The three taxes which have to be distinguished are Turnover taxes, VAT and GST. Turnover tax is a tax which is on the total turnover of sale as a percentage. It can also be a fixed rate on the basis of weight or length. In a turnover tax on a product (output) there is no credit given for the tax paid for the input. When the input tax credit is allowed it is called a Value Added Tax.

For, the tax is on the value added on the raw material and machinery (input). If it is not allowed, it becomes a Turnover tax.

Thus, central excise duty or service tax can be both turnover tax as well as value added tax depending on whether the government decides to allow the credit of input tax to be adjusted against the final duty payable on the output.

In this context, I may refer to the judgement of Home Solution Retail India Ltd. Vs. UOI - 2011 (24) S.T.R. 129 (Del.) which has held that the service of renting of immovable property for commercial use is not service under Section 65(105)(zzzz) of the Finance Act 2007 though any service connected with such immovable property is service. This judgment has heavily depended on the proposition that service tax is a Value Added Tax and if there is no value addition, then there is no service.

The High Court has relied on the judgment of the Supreme Court in the case of All India Federation of Tax Practitioners vs. UOI-2007(7)S.T.R.625(S.C.), which held that "

.service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is a tax on value addition by rendition of service".

Really this portion is not a part of the Supreme Court Judgment but only a statement of economic background of indirect taxes.

But the economic background has not been depicted correctly since both service tax and excise duty are not necessarily value added tax but can also be turnover tax.

Central Excise was turnover tax before 1986. And service tax was introduced as a turnover tax in 1994 but later made into a value added tax by allowing input tax credit.

There is difference between VAT and GST. GST necessarily includes service tax, but VAT can only be on goods without including service tax.

An example, is the state VAT in India, which does not include service tax. The expression VAT has two meanings. First, it refers to the concept of taxing the value added.

Second, it also refers to the actual tax rate imposed on goods and services in a particular country.

Conclusion:
(1) The full expression of the tax is Value Added on Goods and Services Tax. So it can be called VAT or GST, for short. So, both are same when both include service tax. But if service tax is not included, then it is only VAT.

(2)Turnover tax with credit of input tax becomes VAT. So excise duty or service tax can be both turnover tax or VAT depending on whether credit of input tax is given or not which is the discretion of the Government.