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Q27 (IAS/2014) Economy › Government Finance & Budget › Indirect taxation system Official Key

The sales tax you pay while purchasing a toothpaste is a

Result
Your answer: —  Âˇ  Correct: D
Explanation

Sales tax is both imposed and collected directly by the State Governments.[2] In the pre-GST era (before 2017), which includes 2014 when this question was asked, Value Added Tax (VAT) was imposed on the sale of goods within the state[3], and the Central government could not impose taxes on sale of goods within the state.[4] When you purchased toothpaste from a shop in 2014, it was an intra-state sale of goods, which fell under the state's taxation jurisdiction. The state government had the constitutional power to levy and collect this tax. It's important to note that Central Sales Tax (CST) was levied by the Centre on sale of goods from one state to another but the tax proceeds were collected and kept by the origin state[4], but this applied only to inter-state transactions, not regular retail purchases within a state.

Sources
  1. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Global Minimum Corporate Tax (GMCT): > p. 172
  2. [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Global Minimum Corporate Tax (GMCT): > p. 172
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Q. The sales tax you pay while purchasing a toothpaste is a [A] tax imposed by the Central Government [B] tax imposed by the Central Gover…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 ¡ 5/10
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This is a classic 'Applied Polity' question. It tests your grasp of the 7th Schedule (Division of Powers) by converting a dry constitutional entry into a real-world transaction. It is a fundamental check on whether you understand Fiscal Federalism beyond just memorizing Article numbers.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
In India in 2014, was the sales tax charged when purchasing toothpaste a tax imposed by the Central Government?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Global Minimum Corporate Tax (GMCT): > p. 172
Presence: 5/5
“In that sense it regressive. • Excise duty was imposed on manufactured goods and was levied when the goods moved out of the factory area.• Customs duty is imposed on export and import of goods.• Service Tax was imposed on sale of services.• Central Sales Tax (CST) was levied by the Centre on sale of goods from one state to another but the tax proceeds were collected and kept by the origin state, so it was also called origin-based tax.• Value Added Tax (VAT) was imposed on the sale of goods within the state (Central government could not impose taxes on sale of goods within the state.) and it was imposed only on the value addition.”
Why this source?
  • Explicitly states VAT was imposed on sale of goods within the state and that the Central Government could not impose taxes on sale of goods within the state.
  • Distinguishes Central Sales Tax (CST) as levied by Centre only on inter‑state sales, implying retail intra‑state purchases (like toothpaste) attract state tax.
Introduction to the Constitution of India, D. D. Basu (26th ed.). > Chapter 25: DISTRIBUTION OF FINANCIAL POWERS > DISTRIBUTION OF FINANCIAL POWERS > p. 384
Presence: 4/5
“I. (a) No tax shall be imposed on sale or purchase which takes place outside the State. . (b) No tax shall be imposed on sale or purchase which takes place in the course of import into or export out of .India. 3 2. In connection with inter-state trade and commerce there are two limitations- (i) The power to tax sales taking place "in the course of inter-State trade and commerce'" is within the exclusive competence of Parliament [Entry 92A. List I]. (ii) Even though a sale does not take place "in the course of' inter-State trade or commerce, State taxation would be subject to restrictions and conditions”
Why this source?
  • Constitutional distribution of financial powers notes Parliament’s competence is limited to taxing sales 'in the course of inter‑State trade and commerce' (Entry 92A, List I).
  • By contrast, sales within a state are not under exclusive central taxing power, supporting that intra‑state sales tax is not a central levy.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Details about GST > p. 92
Presence: 4/5
“any movement of goods within West Bengal, which attracts 12 per cent GST, SGST and CGST will be 6 per cent each. 3. Central GST (CGST) - Like SGST, it is also applicable only on intra-state trade of goods and services. • Central Taxes: Central Excise Duty; State Taxes: State VAT/Sales Tax • Central Taxes: Additional Duties of Excise; State Taxes: Purchase Tax • Central Taxes: Excise Duty levied under Medicinal and Toiletries Preparation Act; State Taxes: Entertainment Tax (other than those levied by local bodies) • Central Taxes: Additional Duties of Customs and Special Additional Duties of Customs; State Taxes: Luxury Tax • Central Taxes: Service Tax; State Taxes: Octroi Duty and all other forms of Entry Tax • Under GST, there is no uniform tax rate.”
Why this source?
  • Lists Central Taxes versus State Taxes and shows State VAT/Sales Tax as a state subject (separate from central taxes).
  • Reinforces that sales tax/VAT on goods sold within a state is a state, not central, taxation matter.
Statement analysis

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Statement analysis

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Statement analysis

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