The cascading effect associated with taxation

There are several types of taxes that are levied by the government at different levels for example on production level on a sales level. So when there are several taxes collected on a single good or commodity there is a shadow of one tax on another. Whenever a tax is collected on an existing tax that particular concept can be referred to as a cascading effect of the tax. Let us imagine that there is a manufacturer and to manufacture a good he would require the raw materials so the supplier providing the manufacturer with the raw material would levy taxes on the raw materials and such taxes are levied basically by the government of India. Now the basic concept says that the taxes and in particular the indirect taxes are paid by the consumers and the manufacturer pays direct taxes. Now when the manufacturer is selling the final product in the market the government lays down another tax on to the pre-existing taxes that were paid by the manufacturer to the supplier of the raw material. Now the issue arises with the sales tax that is levied by the government on the final product .the manufacturer will raise an issue onto paying the taxes once more as the sales tax so the manufacturer’s claimed back either of the taxes or the claim of the manufacturer stated that if the government does not pays back either or the taxes ultimately all the added taxes are to be borne by the consumers so the market prices will shoot up there will be inflation in the market.

Earlier tax regime :

Earlier the central government imposed an excise tax on goods and the sales tax was imposed by the state government. The taxes were levied twice one in the production stage and one in sales stage hence at the end the ultimate amount borne by the consumers were higher due to the cascading effect.
Need for the emergence of VAT (value-added taxes ):

The cascading effect gave rise to the emergence of VAT. So with the introduction of VAT now the taxes were not levied on the sales stage or the production stage but now it was levied directly on the final amount of the goods.
The concept of input tax credit :

The tax paid by the manufacturer as input tax will be given back to the manufacturer or the producing firm with the addition of input tax credit to the tax regime which will, in turn, be beneficial for the consumers as they will give fewer taxes on the final product.
Even after the introduction of several tax regime, the problem of cascading effect persisted.
Whenever there was an inter-state transaction of goods done the centre levied CST (central state tax ) to the state that the flow of goods was going but the CST that was collected will not go the government fund but it will go to the production state fund. Therefore when the state that has procured the goods questions the government on further addition of sales tax the government answer by saying that the CST tax goes to the production state.
Even with the introduction of VAT they could not eliminate the cascading effect on the tax so in order completely eradicate this effect the GST was introduced and all the tax was levied under one tax regime that is GST