M/S Gem INDIA Exports vs. Assistant Commissioner, Anti Evasion

The present Sales Tax Revisions / References (for short “STRs”) have been filed under Section 84 (2) of the Rajasthan Value Added Tax Act, 2003 (for short “RVAT Act”) and involves the following question of law:

Since common issue is involved in all these STRs, STR No. 14/2023 is taken as lead file to peruse the facts.

Learned counsel for the revenue submits that the premises of the assessee were surveyed on 31.05.2016 wherein it was found that assessee has opted for ‘Composition Scheme for Gem and Stones, 2006’ (for short “Composition Scheme 2006”) which was notified by the State Government vide Notification dated 06.05.2006. As per the Composition Scheme 2006, the dealer can opt for payment of composition amount in lieu of tax and the said amount is determined on the basis of gross annual turnover. For the disputed year(s), the assessee had exported goods out of India but failed to include the export amount in the ‘gross turnover’ and resultantly underpaid composition amount than what was required to be paid. Accordingly, proceedings were initiated against the assessee under Sections 5(1), 26, 55 and 61 of the RVAT Act for evasion of tax as export amount was to be included in the total gross turnover, which the assessee deliberately excluded. The original Assessment Order was passed on 02.03.2021 and the assessee was held liable to pay Rupees 32,53,180/- including tax, interest, and penalty. The appeal against the same was dismissed by the Appellate Authority vide order dated 28.03.2022. However, the Tax Board erroneously allowed the appeal filed by the assessee and quashed the orders dated 02.03.2021 and 28.03.2022 vide impugned order dated 13.07.2022. [2023/RJJP/011003] (5 of 11) [STR-14/2023]

Learned counsel for the revenue submits that the Composition Scheme 2006 is purely optional. However, once the assessee consciously chooses to adopt the Composition Scheme 2006, he/she must necessarily abide by all the terms and conditions mentioned therein. The Composition Scheme 2006 entails payment of composition amount which is in the nature of a fee and is determined on the basis of gross turnover. The prescribed composition amount vis-à-vis annual turnover is reproduced as under: S No Annual Gross turnover of the relevant year Annual Composition amount (in Rupees) 1 Upto Rs. 2.00 lac Nil 2 More than Rs. 2.00 lac and upto Rs 10.00 lac 3,000/- 3 More than Rs. 10.00 lac and upto Rs 500.00 lac 9,600/- 4 More than Rs. 50.00 lac and upto Rs 100.00 lac 15,000/- 5 More than Rs. 100.00 lac and upto Rs 200.00 lac 21,000/- 6 Above Rs. 200.00 lac 30,000/-

Learned counsel for the revenue contends that the term ‘annual gross turnover’ would mean entire turnover and would include the amount of export sale as well and therefore would have an effect on the liability of the composition amount. Learned counsel submits that Co-ordinate Bench of this Court, in STR No. 127/2012 (titled M/s Naveen Jewellers vs. Commercial Taxes Officer; decided on 10.03.2017), in similar facts and circumstances, has already held that composition amount is in the nature of fee/fine and that gross turnover would include the amount of export sales as well. It is further submitted that review petition preferred against the order dated 10.03.2017 in STR

Learned counsel for the revenue further submits that as per the settled position of law on precedents, the dictum of Co- ordinate Bench judgment is also binding on this Court. Reliance in this regard is placed on Hon’ble Apex Court judgments of State of U.P. and Ors. vs. Ajay Kumar Sharma and Ors.: (2016) 15 SCC 289 and S. Kasi vs. State: AIR 2020 SC 2921. 8. Per contra, learned counsel for the assessee submits that the Tax Board rightly distinguished the judgment of Naveen Jewellers (supra) as in the case of Naveen Jewellers (supra), the limited issue was of refund of composition amount already paid by the assessee who was 100% exporter of goods, after consciously opting for the applicable Composition Scheme. It is submitted that nowhere in the judgment has the Court held that composition amount would include the amount of export sale as well. It is further submitted that unlike the case of assessee in Naveen Jewellers (supra), the assessee in this case was having both domestic sales and international/export sales. Furthermore, the judgment of Naveen Jewellers (supra) was passed under the previous tax regime of Rajasthan Sales Tax Act, 1994 (for short “RST Act”), i.e. before the RVAT Act came into force. The indefensible right to take credit is built into the RVAT Act, whereas

Learned counsel for the assessee further submits that the Composition Scheme 2006 was issued by the State Government vide Notification No. F.12(63)FD/Tax/2005-37 dated 06.05.2006, in exercise of powers conferred under Section 5 of the RVAT Act. It is submitted that Section 5 provides for payment of ‘tax in lump sum’ in respect of sales of such class of goods or by such class of dealers on such terms and conditions as may be notified in the Official Gazette. It is contended that the composition amount paid under Composition Scheme 2006 is not in nature of fee or fine, as contended by the revenue, but is payment of lump sum tax as envisaged under Section 5 of RVAT Act, and thus the composition amount retains the character of ‘tax’ only and since the revenue has no authority, under the RVAT Act, to collect tax on export sales, the export sales cannot be included in the ‘gross turnover’ for determination of composition amount. In support of this contention, learned counsel for the assessee has also highlighted the use of the words “within the State” in the preamble to the notification dated 06.05.2006. 10. Learned counsel for the assessee has also relied on Hon’ble Apex Court judgments of State of U.P. and Ors. vs. Synthetics and Chemicals Ltd. and Ors. : (1991) 4 SCC 139

In the case in hand, following facts are noteworthy: 12.1) that the assessee was engaged in the gems and stones business and had opted for the Composition Scheme 2006; 12.2) that the assessee was engaged in both domestic sales and international/export sales; 12.3) that the assessee was paying the composition amount vis-à-vis local sale, i.e. based on the gross turnover of domestic sales, and the assessee was not including the amount of export sales in the gross turnover; 12.4) that revenue initiated proceedings against the assesse for evasion of tax because as per revenue, the assessee had to include export sales also in the gross turnover.

The limited issue involved in these STRs is with regard to interpretation of the term ‘gross turnover’ as contained in the Composition Scheme 2006; and whether export sales have to be included in the gross turnover for the purpose of determining the applicable composition amount.

At the outset, we must take note of the preamble of Notification No. F.12(63)FD/Tax/2005-37 dated 06.05.2006, which is reproduced as under: “In exercise of the powers conferred by section 5 of the Rajasthan Value Added Tax Act, 2003 (Act No. 4 of 2003) the State Government being of the opinion that it is expedient in the public interest to do so, hereby notifies the “Composition Scheme for Gems and Stones, 2006” (hereinafter referred to as ‘the scheme’), and permits such dealers to opt for

The specific terminology used in the Composition Scheme 2006 and Section 5 of RVAT Act, like (i) ‘in lieu of tax liability’; (ii) ‘sale of all kinds … within the State’; (iii) ‘gross turnover’; (iv) ‘payment of tax in lump sum’, are note-worthy. From the conjoint reading of notification dated 06.05.2006 and Section 5 of RVAT Act, it is abundantly clear that the composition amount as envisaged under the Composition Scheme 2006 is levied so that assessee can discharge his/her tax liability by paying a lump sum amount / composition amount. The Composition Scheme 2006 was introduced with a beneficial purpose with the objective to streamline/simplify the tax paying process and to reduce the otherwise rigorous and complex compliance with respect to tax return. Thus, composition amount paid by the assessee, essentially to discharge his/her tax liability,

As per Article 265 (Taxes not to be imposed save by authority of law) of Constitution of India, no tax can be levied or collected except by authority of law. Further, as per Article 286 (Restrictions as to imposition of tax on the sale or purchase of goods) of Constitution of India, no State law can impose tax on supply of goods or services outside the State or in the course of import or export of goods or services outside the territory of India. In these circumstances, the contention of the Revenue that gross turnover would include export sale as well cannot be accepted as that would tantamount to permitting State to collect tax on exports, which is constitutionally impermissible.

The judgment of Naveen Jewellers (supra) in which composition amount was held to be in nature of fine or fees, passed by Co-ordinate Bench of this Court, relied upon by the Revenue, is distinguishable both on facts and law, on the following counts: 17.1) because Naveen Jewellers (supra) was pertaining to era/regime prior to the enactment of RVAT Act. With the introduction of RVAT Act, which substituted the RST Act, there was a change in law. The RVAT Act is based on multi point taxation with option of input tax credit, whereas the RST Act was single point taxation with no option for input tax credit; 17.2) because provision of Section 5 of RVAT Act was not considered in Naveen Jewellers (supra), which specifically states ‘option for payment of tax in a lump sum’. Since the Composite Scheme 2006 stems from Section 5 of RVAT Act, the

For the reasons stated above, the decision of Naveen Jewellers (supra), being distinguishable both on law and facts, cannot be said to be binding in the present case.

In view of the foregoing analysis, this Court is of the view that the assessee was rightly excluding the export sales form the gross turnover and was accordingly paying composition amount on gross turnover of local sales. Therefore, the question of law framed hereinabove is answered in favour of the assessee and against the revenue.

Consequently, all the STRs filed by the revenue (STRs 13-19/2023) are dismissed and all the STRs filed by the assessee (STRs 61-67/2023) are disposed of. Pending application(s), if any, shall stand disposed of. (SAMEER JAIN),J ANIL SHARMA /s-96-110